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Home » With the Consumer Price Index (CPI) recovering for the fourth consecutive month, has China managed to dispel deflation fears?
China

With the Consumer Price Index (CPI) recovering for the fourth consecutive month, has China managed to dispel deflation fears?

i2wtcBy i2wtcJune 12, 2024No Comments3 Mins Read
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China’s National Bureau of Statistics said on Wednesday that the consumer price index (CPI), a gauge of inflation in the world’s second-largest economy, rose 0.3 percent in May from a year earlier but remained well below the government’s target.

China’s CPI has been hovering around zero since April last year, a stark contrast to high inflation in the West and raising deflation concerns as the economy struggles with sluggish consumption that has characterised the country’s uneven recovery since the pandemic.

Meanwhile, China’s producer price index (PPI), which measures the cost of goods leaving factories, fell 1.4% year-on-year in May, the 20th consecutive month of decline but an improvement from a 2.5% drop in April.

“These are broadly in line with expectations. I don’t think deflationary pressures have subsided yet,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

“The improvement in the producer price index is mainly due to commodity prices such as copper and gold, and does not reflect China’s domestic demand,” Zhang said.

On a month-on-month basis, inflation fell 0.1% in May, turning negative again, after a modest recovery of 0.1% in April, according to NBS data.

Meanwhile, the producer price index rose 0.2% from the previous month in May after declining for six consecutive months.

China’s core inflation, which excludes volatile food and energy prices, rose 0.6 percent year-on-year in May.

Food prices fell 2 percent in May from a year earlier, and food is likely to remain deflationary, although pork and egg prices have started to stabilise “a little bit” month-on-month, Lin Song, an economist at ING Greater China, said Tuesday.

China’s public sector had been under pressure to raise prices for services such as train tickets and utility fees even before May due to cost pressures and tight local finances, analysts said.

High-speed rail ticket prices on some routes are due to rise by around 20 percent on Saturday, and water prices are also expected to rise in some parts of the country.

Fitch Bohua Rating Services associate director for corporates Darius Tan said extended May Day holiday travel likely contributed to the rise in the CPI last month, adding that tourist demand supported both consumer prices and service prices.

However, CPI is expected to remain little changed in China in the coming months as there is no effective domestic demand, Tang added.

Beijing last month announced a package of measures to rescue its struggling real estate sector, including a fund worth 300 billion yuan ($41.4 billion) to help clear excess housing inventory.

A series of new policies in the real estate sector are a step in the right direction, but property sales have not recovered in recent weeks, Zhang said.

“A more comprehensive and proactive policy stance encompassing the fiscal, monetary and real estate sectors may be needed to more effectively boost domestic demand,” he added.



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