- Consumer Prices Decline for Fourth Straight Month: China’s CPI fell 0.1% YoY in May, marking four months of deflation. Core inflation (excluding food & energy) rose 0.6%, the highest since January.
- Factory Deflation Worsens: PPI dropped 3.3% YoY, the steepest decline since July 2023, driven by falling coal, oil, and gas prices.
- Auto Price Wars & Weak Demand: A fierce price war in the auto sector and declining property prices are suppressing consumer prices. Policymakers have urged automakers to stop aggressive discounting, which hurts profitability.
- Stimulus Measures Fall Short: Despite rate cuts and RRR reductions, domestic demand remains sluggish. Experts warn China must boost consumption to counter deflation.
- U.S.-China Trade Tensions Ease (Temporarily): After a preliminary deal in Geneva, both sides lowered tariffs (U.S. to 51.1%, China to 32.6%). However, disputes persist over critical mineral exports and tech restrictions.
- More Policy Support Expected: Analysts anticipate further monetary easing, including additional RRR cuts and bond market interventions. Key announcements may come at the upcoming Lujiazui Forum in Shanghai.
- Trade Data Awaited: May exports are expected to rise 5% YoY, while imports may fall 0.9%, reflecting uneven recovery.
Key Takeaway:
China’s economy continues to struggle with deflationary pressures due to weak domestic demand and industrial overcapacity. While trade tensions with the U.S. have eased slightly, Beijing may need stronger stimulus measures to revive growth.