With stimulus policies contributing effectively to recovery and domestic demand ever growing, China's consumer price index (CPI) will start to turn positive in the third quarter of 2009, predicted Qu Hongbin, Chief Economist for HSBC.

Speaking at the Spring Membership Meeting of the Institute of International Finance Wednesday, Qu is optimistic about the CPI trend in China based upon the economic data released by the National Bureau of Statistics (NBS).

"The CPI decline in May is mainly caused by the falling price of commodities from the price hike early last year," said Qu.

"Currently, the price of communities has turned up from the lowest point, therefore CPI will bottom out and turn positive in the third quarter, which will also be consolidated by growing domestic demand and the recovery of economy," Qu added.

CPI in May fell 1.4 percent year on year, the fourth consecutive monthly decline since the index dropped 1.6 percent in February, the first fall after October 2002, according to NBS.

Compared with the fall of 1.5 percent year on year in April, the May decline was slightly slowed -- a sign of a sustained economic recovery, according to Qu.

To support his positive view on China's recovery, he cited several figures: fixed asset investment jumped 30.5 percent in the four months, industrial output grew 7.3 percent in April, consumer spending, as gauged in retail sales, expanded 14.8 percent year on year in April, and the property prices in 70 large and medium-sized cities shrank to 0.6 percent year-on-year in May from 1.1 percent in April.

This obviously proves the Chinese government's 4 trillion yuan investment has started to take effect, Qu concluded, adding its GDP growth in the second half of the year will exceed 8 percent.

(Xinhua News Agency June 13, 2009)