China’s inflation holds steady in May, factory deflation eases By Reuters

BEIJING (Reuters) -China’s consumer inflation held steady in May while producer price declines eased, but the underlying trend suggests Beijing would need to do more to prop up feeble 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, data from the National Bureau of Statistics (NBS) showed on Wednesday, below a 0.4% increase forecast in a Reuters poll.

CPI edged down 0.1% from the month before, against a 0.1% rise in April and compared with economists forecasts for zero growth.

The slide in the producer price index (PPI) eased to 1.4% in May from 2.5% in April, compared with a forecast 1.5% decline.

“I think the deflationary pressure has not faded yet,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“The CPI inflation is slightly negative in m-o-m terms. The improvement in PPI is largely driven by commodity prices such as and gold, which is not a reflection of China’s domestic demand,” he said.

China’s economy has struggled to motor on despite the end of stringent COVID curbs in late 2022, mainly due to the ripple effects of a prolonged property sector crisis on investor, business and consumer confidence.

Beijing has rolled out several measures to spur demand in the housing sector and launched other schemes to boost consumer sentiment, including offering government-subsidised incentives to spur trade-ins of autos and other consumer goods.

It has also vowed to create more jobs linked to major projects, roll out measures to promote domestic demand targeted for youths and has pledged greater fiscal stimulus to shore up growth.

Wednesday data on the core inflation measure, which excludes volatile food and energy prices, highlighted the fragility of domestic demand. It stood at 0.6% in May year-on-year, slowing 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 its GDP growth target of “around” 5% for this year, and foster a sustainable rebound.

“A more comprehensive and proactive policy stance covering fiscal, monetary, and property sector may be necessary to boost domestic demand more effectively,” Pinpoint’s Zhang said.