In China, the increase in consumer prices remains very low. In addition, as the decline in producer prices accelerated, the central bank still has plenty of room to stimulate the weakening economy. Consumer prices rose by 0.2 percent in May compared to a year earlier, the National Bureau of Statistics said in Beijing on Friday. Inflation thus remains close to zero. Experts had expected a value of this magnitude. In April, the inflation rate had surprisingly fallen sharply to 0.1 percent.
With a year-on-year decline of 4.6 percent, prices at producer level fell even more sharply in May than recently. Economists had expected an average decline of 4.3 percent. In the previous month, producer prices had fallen by 3.6 percent.
Highest decline since 2016
After producers had to accept double-digit increases in prices at the end of 2021 and the beginning of 2022, in some cases, they are now declining for the eighth month in a row. The decline in May was the highest since 2016.
In view of the latest economic data, such as the purchasing manager index for industry or data from the housing market, experts such as Zhiwei Zhang, chief economist at Pinpoint Asset Management, see the danger of deflation in China. "The latest economic indicators are sending consistent signals of a cooling economy," he told Bloomberg. Deflation is the opposite of inflation and refers to the decline in the general price level.
For the majority of experts, deflation is more dangerous for the development of an economy than slightly rising prices. At first glance, consumers benefit from this, as they have to pay less for goods and services. However, deflation usually also puts pressure on the profits of companies and thus carries the risk, for example, of lower wages or layoffs.
The price development in China stands out from many other countries that suffer from high inflation.