Source:  The Wall Street Journal                    Date: 15 June, 2011

China said inflation accelerated last month, reinforcing expectations that the Government is likely to keep tightening despite widening signs that activity is already slowing in the world's No. 2 economy. The consumer price index rose 5.5% in May from a year earlier, outpacing the recent high of 5.4%, hit in March, and marked the fastest clip since the index rose 6.3% in July 2008.

The inflation reading came after China's central bank a day earlier reported a sharp slowdown in credit growth, with Chinese banks issuing 551.6 billion yuan (USD85.1 billion) of new loans in May, down from 739.6 billion yuan in April and below economists' expectations.

The credit data, along with unexpectedly slow growth in the money supply, offered the latest sign that the series of interest rate hikes and other tightening moves aimed at taming prices have started to take hold in China's economy—a major source of global growth. Already, a drop in housing prices in some big cities threatens to cool activity in construction, which has propelled China's expansion and fed demand for commodities such as iron ore and copper.

The present data also made for mixed signals on the pace of the slowdown, with the benchmark measure of industrial output increasing 13.3% in May, down slightly from a 13.4% rise in April. Investment in factories, building construction and other fixed-asset investment accelerated, however, rising 25.8% in the first five months, from 25.4% pace in the January-April period.

The stubbornly high inflation reading is likely to remain the primary focus of China's monetary policymakers, analysts said. Despite the slowdown, most analysts still expect the economy to grow at 9% or faster this year. Inflation, meanwhile, has been a source of growing public anger that has worried a government obsessed with maintaining social stability.