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China Consumer Prices Rise as Factory Deflation Continues

In World
June 12, 2024

(Bloomberg) — China’s consumer prices rose in May, holding above zero for a fourth month after the country saw its worst deflation streak in over a decade.

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The consumer price index rose 0.3% from a year earlier, the National Bureau of Statistics said Wednesday, posing the same modest gain it did in April and comparing to a median forecast of 0.4% in a Bloomberg survey of economists.

Factory-gate prices remained stuck in deflation, as they’ve been since late 2022, with the producer price index sliding 1.4% in May from a year earlier. Economists surveyed by Bloomberg had expected a 1.5% drop after the index declined 2.5% in April.

“Price pressures are still weak as domestic demand is still lacking,” said Woei Chen Ho, an economist at United Overseas Bank Ltd. “Food price deflation is a major contributor to the weak prices but this should ease in coming months due to a more favorable base effect.”

Core inflation, which strips out volatile food and energy prices, rose 0.6% in May compared to the same period last year, an increase NBS analyst Dong Lijuan described as mild. “The consumption market was generally stable in May,” Dong said in a statement accompanying the data release.

The government has struggled to spur higher household spending amid a prolonged real estate slump and a weak job market. Falling producer prices are squeezing companies’ profits and making them reluctant to invest. There’s also a risk consumers could become even more reluctant to spend in anticipation that goods will be cheaper in the future.

China’s economy recently suffered its longest deflation streak since the Global Financial Crisis because domestic demand remained weak even after the country re-opened from Covid. Economists surveyed by Bloomberg forecast consumer prices to increase by 0.7% this year, a far cry from the 3% official target.

Some of the rise in consumer prices may be due to administrative decisions rather than any improvement in demand. Local governments have been increasing utility costs and train fares in recent months, a move that could push the price index higher but leave households with less spending power for other purchases.

(Updates with comments from analysts)

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