China’s consumer prices declined for a fourth consecutive month in May, heightening concerns over persistent deflation and sluggish domestic demand despite ongoing government stimulus efforts. Data released by the National Bureau of Statistics on Monday indicated that the consumer price index (CPI) dropped 0.1% year-on-year, slightly better than the 0.2% decline forecast by analysts surveyed by Reuters. The CPI has remained in negative territory since February, when it fell 0.7%, followed by declines of 0.1% in both March and April.
Core inflation, which excludes volatile food and energy prices, rose 0.6% in May, marking the highest level since January, according to data from Wind Information. However, the marginal uptick in core inflation was insufficient to offset broader deflationary pressures. Factory-gate prices, represented by the producer price index (PPI), experienced a deeper decline, falling 3.3% year-on-year, the steepest drop since July 2023. This figure also surpassed analyst expectations of a 3.2% fall, based on data from LSEG. Producer prices have remained in deflationary territory since October 2022.
Persistent weak consumer spending, exacerbated by intensifying price competition in key sectors such as automobiles, continues to weigh on prices. The aggressive price wars in the auto industry have led to further downward pressure, with policymakers urging companies to stabilize pricing to avoid undermining profitability and operational efficiency. Falling property prices have also contributed to the sustained weakness in consumer inflation, according to economists.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, emphasized that while China’s export sector has demonstrated resilience, domestic demand must recover significantly to counter deflationary risks. Official data showed that factory-gate prices for sectors such as coal mining and oil and gas extraction registered the largest annual declines in May, plunging 18.2% and 17.3%, respectively.
In response to the weakening economic indicators, Chinese financial regulators have introduced several measures aimed at stimulating growth. On May 7, the People’s Bank of China reduced key interest rates by 10 basis points to record lows and lowered the reserve requirement ratio by 50 basis points to inject liquidity into the banking system. However, officials acknowledge that additional, more targeted stimulus measures may be necessary to revive domestic consumption meaningfully.
Trade relations between China and the United States also remain a focal point amid ongoing negotiations. A preliminary agreement reached in May led both countries to scale back tariffs, with the U.S. reducing levies on Chinese goods to 51.1% and China lowering duties on American imports to 32.6%. Nevertheless, tensions have resurfaced, with both sides accusing each other of failing to fully comply with the Geneva agreement.
Chinese Vice Premier He Lifeng is scheduled to meet with U.S. Treasury Secretary Scott Bessent in London this week for renewed trade discussions. As the fragile truce faces fresh challenges, markets are closely monitoring whether Beijing will introduce additional monetary easing measures. The annual Lujiazui Forum, set to convene later this month in Shanghai, is expected to provide further insights into forthcoming policy directions, with keynote addresses by top financial regulators, including People’s Bank of China Governor Pan Gongsheng. – By MENA Newswire News Desk.