Chinese inflation remained stable in May, factory deflation is decreasing


BEIJING (Reuters) -China’s consumer inflation held steady in May while the decline in producer prices eased, but the underlying trend suggests Beijing should do more to support weak domestic demand and an uneven economic recovery.

The consumer price index (CPI) rose 0.3% in May from a year earlier, matching a gain in April, National Bureau of Statistics (NBS) data showed on Wednesday, below forecasts of an increase of 0.4% in a Reuters poll.

The CPI fell 0.1% from the previous month, down from 0.1% in April and compared with economists’ forecasts for zero growth.

The decline in the producer price index (PPI) slowed to 1.4% in May from 2.5% in April, compared to an expected decline of 1.5%.

“I don’t think deflationary pressures have gone away yet,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“CPI inflation is slightly negative in mom terms. The PPI improvement is largely driven by commodity prices such as copper and gold, which does not reflect Chinese domestic demand,” he said.

China’s economy is struggling to keep going despite the end of strict COVID measures at the end of 2022, mainly due to the negative impact of a prolonged crisis in the real estate sector on investor, business and consumer confidence.

Beijing has taken several measures to stimulate demand in the housing sector and launched other programs to boost consumer confidence, including offering government-subsidized incentives to boost trade in cars and other consumer goods.

The country has also pledged to create more jobs linked to major projects, roll out measures to boost domestic demand and target youth, and pledge greater fiscal stimulus to support growth.

Data on Wednesday on the core inflation measure, which excludes volatile food and energy prices, underlined the fragility of domestic demand. In May, growth was 0.6% year on year, a slowdown from 0.7% in April.

Many economists expect Beijing to unveil more support measures in coming months to keep the economy on track to reach this year’s GDP growth target of “around” 5% and promote a sustainable recovery.

“A more comprehensive and proactive policy covering the fiscal, monetary and real estate sectors may be needed to stimulate domestic demand more effectively,” Pinpoint’s Zhang said.

(Reporting by Qiaoyi Li, Liangping Gao and Ryan Woo; Editing by Shri Navaratnam)

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