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China Inflation May 2023

China: Consumer price inflation remains muted in May; producer prices fall at a sharper pace

Consumer inflation ticked up to 0.2% in May, above April’s 0.1%. Higher food prices were largely offset by lower prices for transport and housing. The depressed reading hints at muted consumer spending, and is a further sign that the post-pandemic recovery is running out of steam.

The trend pointed down mildly, with annual average inflation coming in at 1.7% in May (April: 1.8%). Finally, consumer prices dropped 0.20% in May over the previous month, a sharper drop than April’s 0.10% drop.

Meanwhile, producer prices fell 4.6% on an annual basis in May, which was a sharper decrease compared to April’s 3.6% fall. The drop was due to softer global commodity prices, improving supply chains and soft domestic industrial activity.

Looking ahead, the Consensus is for a slight recovery in consumer and producer price pressures by the end of the year, on the back of an expected uptick in global energy prices and likely further domestic policy support. That said, price pressures will be depressed nonetheless.

On the May data and outlook, Goldman Sachs analysts said:

“Goods prices continued to soften as supply recovery outpaced demand recovery in Q1 with a drastic increase of inventory that may take months to destock. Looking ahead, in year-over-year terms, we expect PPI deflation to persist in the coming months. The destocking process and pork price weakness could pose some downside risks to our headline CPI inflation forecast.”

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