China April inflation forecast at around 2.2%

Regarding producer price index (PPI), a barometer of future consumer inflation, institutions held that it will continue to be in negative territory in April as domestic fuel prices fell, global commodity prices exhibited a downward trend and China's economic recovery remained weak.

The Bank of Communications expected PPI to decline 2.1 percent year on year in April while the China International Capital Corp (CICC) projected it at negative 2.8 percent.

Previous figures showed that China's PPI, an index tracking changes in prices that producers charge for their output, has fallen for the 13th consecutive month. It dropped 1.9 percent year on year in March.

Zhao Yang, an analyst at CICC, said the drop in PPI eases inflationary pressure, but the steady decline also prompts warnings that Chinese manufacturing sector might be entering a period of deflation, a potentially dangerous phenomenon.

Falling prices of industrial products will lead producers to put off investment and production, and suspend purchase of raw materials, said Zhao. As demand from Chinese companies shrinks, the aggregate demand of the economy will be less.

Lian Ping, an economist with the Bank of Communications, said the PPI will gradually go up this year given improving domestic demand and abundant global liquidity.

A turnaround from decline to growth may not happen until the third quarter, said Lian.