Inflation rates subside in May, as the CPI and PPI show

Inflation in China remained at subdued levels in May, as the economy struggled to recover even after strict Covid lockdown measures were lifted late last year.

The producer price index in May fell 4.6%, compared to a decline of 3.6% in April. A Reuters poll showed that economists expect to see a 4.3% drop in producer prices.

The reading was the biggest year-on-year decline in seven years, when producer prices saw a year-over-year decline of 7.2% in May 2016.

Government data showed that China’s consumer price index in May rose 0.2% from a year ago. Economists polled by Reuters had expected a 0.3 percent rise. The CPI in April was at a two-year low of 0.1%.

On a monthly basis, prices fell 0.2% – economists had expected a 0.1% drop.

China’s low consumer inflation and deflation in producer prices contrast with relatively high inflation in major economies around the world.

Global central banks, including the US Federal Reserve, have been fighting to bring down high rates for more than a year. Just this week, Canada and Australia defied expectations and raised interest rates.

After the release, the inland Chinese yuan fell 0.06%, after reaching 7.1154 against the US dollar. The CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, fell 0.2% and last traded just above the flat line.

The latest data is among a host of economic indicators pointing to a quiet economy in China.

“The risk of deflation continues to weigh on the economy. Recent economic indicators are sending consistent signals that the economy is slowing down,” said Zhiyue Zhang of Pinpoint Asset Management.

Zhang expects the next fiscal policy review of the Chinese government will be held after the release of the second-quarter GDP next month.

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