China’s factory-gate inflation moderated in May as global commodity prices eased, while Covid restrictions kept consumer inflation in check.
The producer price index rose 6.4% last month from a year earlier, National Bureau of Statistics data showed on Friday. That compares to 8% growth in April, and it was in line with economists’ expectations.
Consumer prices, meanwhile, rose 2.1%, just under the median forecast of a 2.2% increase in a Bloomberg survey of economists, and unchanged from April.
China’s Covid restrictions weighed on demand during the month, affecting consumer inflation. Along with the slowdown in PPI, that will likely ease concerns among policy makers about how and when to enact more stimulus this year as the country tries to shore up economic growth.
“This is not an economy where the central bank really has to worry about inflation,” Michael Spencer, chief economist and head of research at Deutsche Bank AG, said in an interview on Bloomberg Television.
“Even if we get a bounce-back in the third quarter as hopefully these lockdowns come to an end, it’s going to bounce back to a very moderate inflation rate, modestly below the trend of growth in China.”
China’s financial markets were muted after the data release, with government bonds barely moving and the benchmark CSI 300 Index of stocks down 0.3% as of 10:17 a.m. local time.
What Bloomberg’s economists say...
China’s slack inflation data for May underline weakness in the economy and add to the case for the People’s Bank of China to increase stimulus further. A drop in the CPI from April tracked weak demand from households whose sentiment has been battered by Covid restrictions, said David Qu, China economist.
Global commodity prices aren’t as high as they were earlier this year when the war in Ukraine broke out, contributing to the moderation in factory-gate inflation. Smooth and stable supply and industrial chains helped ease the increase in PPI, said Dong Lijuan, a senior statistician at the NBS, in a statement.
“Improving domestic virus control and prevention” and “generally sufficient supply in the consumer market” contributed to the stable on-year increase in consumer prices, Dong said.
Pork prices, a key component in China’s CPI basket, fell 21.1%, dragging the headline number down by 0.34 percentage point. Fresh vegetable prices rose by 11.6% year-on-year in May, while fresh fruit prices increased by 19% during that time, driving CPI up by a combined 0.58 percentage point. Fuel prices for vehicles climbed by 27.1% from a year earlier.
Core inflation, which removes the more volatile food and energy prices, rose 0.9%, unchanged from April.
Inflation will unlikely be a constraint for policy easing, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management Ltd, adding that he expects the government to “roll out more stimulus in the next few months, including an interest rate cut”. BM