Weak Inflation Data Reflects Ongoing Economic Challenges
China’s consumer price index (CPI) inflation rate declined for the fourth consecutive month in May, while producer prices suffered their steepest drop in nearly two years, underscoring persistent domestic demand weakness amid ongoing trade tensions with the United States.
Key Inflation Figures
CPI:
-
- Year-on-year: -0.1% (matching expectations and April’s decline)
- Month-on-month: -0.2% (reversing April’s 0.1% increase)
PPI:
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- Year-on-year: -3.3% (worst decline since July 2023, worse than the 3.1% forecast)
- Month-on-month: Data not specified
The CPI data highlights continued sluggish domestic consumption, despite two years of government efforts to stimulate spending. The weak inflation readings come ahead of trade talks between China and the US in London, following last month’s diplomatic easing in Geneva. A potential trade deal could reduce US tariffs on Chinese goods, easing one of the major drags on China’s economy in April.
Market attention is now turning to additional fiscal measures from Beijing, which are expected to focus on boosting consumption.
PPI Decline Reflects Trade and Demand Pressures
The sharp PPI contraction indicates:
Falling overseas orders weighing on Chinese manufacturers
High US tariffs dampening market sentiment
Weak domestic demand despite expectations of a Labor Day holiday boost
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