China's producer price index falls

China's producer price index (PPI), a barometer of future consumer inflation, fell 2.6 percent year on year in April, the National Bureau of Statistics said Thursday.

The drop exceeded the 2.2 percent market forecast and recorded the lowest figure since November, suggesting continued weak market demand, reported Xinhua.

The decline decreased 0.6 percent from March, marking the 14th straight month of falls after the PPI dropped in March 2012 for the first time since December 2009.

Output prices of production materials fell 3.5 percent year on year in April, contributing about 2.68 percentage points of the PPI drop in the month, while those of consumer goods gained 0.3 percent during the period.

The data came along with the release of China's consumer price index (CPI), a main gauge of inflation, which grew 2.4 percent year on year in April, up from 2.1 percent in March.

Ding Shuang, senior economist with Citigroup, said that the more-than-expected PPI drop was largely attributed to price decline of staple commodities.

"The drop highlighted weak domestic demand and it also suggested a rising risk of the Chinese manufacturing sector entering a period of deflation," Ding said.

Hu Yuexiao, economic analyst from Shanghai Securities, said that the PPI drop reflected

the excess production capacity of China's manufacturing sector.

"As demand from Chinese companies shrinks, the aggregate demand of the economy will be less," Hu added.

Lian Ping, chief economist with the Bank of Communications, said that the PPI would gradually go up within the year but the positive growth in PPI might not be seen until the third quarter.