May CPI Falls 0.1%, Marking Fourth Consecutive Month of Decline
Slowing Consumption and Price Competition in Automotive Industry Cited as Main Causes
Stronger and More Targeted Economic Stimulus Measures Needed
China's Consumer Price Index (CPI) for May fell by 0.1% year-on-year, marking a fourth consecutive month of decline. As slowing consumption and fierce price competition in the automotive industry are cited as the main causes of falling prices, experts have diagnosed that stronger and more targeted economic stimulus measures are needed to escape deflation.
According to China's National Bureau of Statistics on June 9, the May CPI decreased by 0.1% compared to the same month last year. After entering negative territory with -0.7% in February, the CPI continued to fall by 0.1% in both March and April, and again in May. In contrast, the core inflation rate, which excludes food and energy, rose by 0.6%, marking the highest increase since January this year.
The Producer Price Index (PPI) fell by 3.3% compared to the same month last year, recording the largest drop since July 2023. This decline was sharper than the Reuters market forecast of -3.2%, indicating that weak pricing across Chinese industries is persisting.
Zhang Zhiwei, CEO and Chief Economist at Pinpoint Asset Management, analyzed that "consumer demand remains weak, and excessive price competition within the automotive industry is accelerating the decline in prices." Chinese authorities also see this competition as creating a vicious cycle in which it undermines corporate profitability and efficiency while further lowering prices. In addition, the slump in the real estate market has been identified as another major factor exerting downward pressure on consumer prices.
The Chinese government has officially urged the auto industry to refrain from overheated price competition and has implemented consumption-boosting policies such as the Yijiu Huaxin program. However, structural factors such as the prolonged US-China trade conflict and the sluggish real estate market are overlapping, making it difficult to halt the downward trend in prices.
Although exports remain relatively robust, analysts say that ultimately, China will have to rely on domestic demand to overcome deflation?a situation where prices fall amid economic stagnation. Zhang emphasized, "Ultimately, the fight against deflation depends on the recovery of domestic demand," while Dong Lijun, Chief Statistician at the National Bureau of Statistics, also stated that "stronger and more targeted stimulus measures are needed to promote consumption."
Currently, market attention is focused on whether the Chinese government will implement additional monetary easing measures. Last month, China cut its benchmark interest rate by 10 basis points (0.10%) and lowered banks' reserve requirement ratio by 50 basis points as part of its economic stimulus efforts. The state-run China Securities Journal predicted the possibility of an additional reserve requirement ratio cut in the second half of the year and the resumption of government bond purchases. The People's Bank of China has suspended government bond purchases since January this year.
Meanwhile, this week in London, the second round of trade talks is scheduled between delegations led by Chinese Vice Premier He Lifeng and US Treasury Secretary Scott Besant. Last month in Geneva, the two sides agreed to significantly reduce high tariffs, but tensions have since escalated again due to US restrictions on Chinese student visas and semiconductor exports, as well as China's delays in exporting critical minerals.
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