A sharp drop in food costs helped Chinese consumer inflation to drop to 1.2% in May, down from April’s 1.5%, and lower than forecast.<br /><br /> The producer price index stayed in negative territory, and the deflation now cemented in after four years of contraction is strengthening the argument for a more aggressive fiscal stimulus, which should be supplemented, say some economists, with a cut in interest rates.<br /><br /> Companies and banks are busy repairing their balance sheets and borrowing less, or not at all. Weak producer prices are also being compounded by recovering commodity prices.
