China's consumer price index (CPI) has fallen for four consecutive months since February. The Chinese government is implementing domestic activation policies amid concerns about economic recession and deflation (price decline) following the outbreak of the U.S.-China tariff war; however, prices that have been continuously falling since the third quarter of last year are not showing signs of recovery. However, China's statistical authorities explained that the decline in consumer prices in May is merely a phenomenon caused by falling oil prices, and excluding this, the upward trend has resumed.
China's National Bureau of Statistics announced on the 9th that the CPI in May fell by 0.1% compared to the same month last year. This was a smaller decline than the 0.2% decrease estimated by Reuters. The CPI has maintained a similar level of decline after a significant drop of 0.7% in February (compared to the same period last year).
The producer price index (PPI) for May fell 3.3% year on year, marking the 32nd consecutive month of decline, with a larger drop than the market expectation of a 3.2% decrease. According to U.S. CNBC, the PPI has remained in a deflationary phase since October 2022.
The Hong Kong South China Morning Post (SCMP) noted, "China faces persistent deflation risks due to sluggish domestic demand and oversupply," adding that "trade uncertainties have led to excessive inventory among suppliers, exacerbating deflationary pressures."
However, authorities explained that the decline in consumer prices this month was due to falling oil prices, while the core CPI, excluding food and energy prices, has risen. Dong Lijun, chief statistician of the National Bureau of Statistics, stated, "The decline in oil prices accounted for about 70% of the overall CPI drop, and the core CPI, excluding this, has risen 0.6% year on year," adding that the government's domestic activation policies have stimulated consumption, increased productivity, and improved supply-demand conditions in some regions, leading to positive changes in prices.
Regarding the drop in PPI, he said, "The decline in international energy prices has caused decreases in the PPI of oil and natural gas extraction, refined oil product manufacturing, and chemical raw materials and products manufacturing, accounting for more than 50% of the overall decline."
Meanwhile, China dramatically lowered interest rates and bank reserve requirements on May 7 in an effort to mitigate the economic impact from the tariff war with the U.S. On the 12th of the same month, China and the U.S. agreed to suspend the tariff war for 90 days, reducing most tariffs and temporarily breathing easier. On this day, trade negotiations between the two countries are expected to resume in London, England.
CNBC noted, "Markets are watching to see if China will implement further monetary easing to stimulate domestic demand," adding that "the People's Bank of China may lower the reserve requirement ratio further by the end of the year, with attention focused on major financial policies to be announced in Shanghai at the end of this month."