China's headline consumer price index rose 0.2 percent on the year in May, up slightly from 0.1 percent in April and matching the consensus forecast. The index fell 0.2 percent on the month after dropping 0.1 percent previously.

Food prices rose at a faster pace in May, up 1.0 percent on the year after a previous increase of 0.4 percent, while non-food prices were flat on the year after increasing 0.1 percent previously. Transportation and communication prices were again weak, falling 3.9 percent on the year after a previous decline of 3.3 percent, offset by solid increases in prices for health, education, and miscellaneous goods and services.

Comments from People's Bank of China Governor Yi Gang published today suggest that officials are not concerned about deflationary risks at present or contemplating a major change in policy settings. He attributed recent weakness in inflation to the base effects of price increases twelve months previously and expressed confidence that both economic activity and price pressures will pick up in the second half of the year. He also reiterated that monetary policy will be kept"stable" while arguing there is"ample policy room" to support economic recovery.

Today's update puts the China ECDI at 7 and the ECDI-P at 20, indicating that data are now outperforming market expectations after a recent period of underperformance.

Forecasters see a 0.2 percent year-over-year rate in May versus 0.1 percent in April, the lowest level in more than two years. China's CPI has come in below Econoday's consensus the last seven reports and has not exceeded the consensus since July last year.

Consumer Price Index (CPI) is an index that measures changes over time in the price level of consumer goods and services purchased by residents, which reflects the overall changes in price level.

Consumer prices account for a majority of overall inflation, which is carefully monitored by investors worldwide. Investors worldwide monitor Chinese price changes closely. A pickup in inflation could mean an increase in interest rates is in the offing from the People's Bank of China while an easing could mean looser monetary policy. The monthly CPI is broken down by 8 categories with more detail available on the following day including aggregate information by urban and rural areas and provinces.

The CPI measures the change in the level of prices for a specified basket of goods and services normally purchased by urban and rural residents. Approximately 226 areas throughout the country are covered, including 80 counties and 146 cities. The current CPI is an annually chained Laspeyres price index and has been available since 2001. From 1978 to 2000, the index was compiled using current year weights for most items.