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China’s Factory Deflation Deepened in May Amid Slow Recovery




imageForex10 hours ago (Jun 09, 2020 10:09PM ET)
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(C) Reuters. China’s Factory Deflation Deepened in May Amid Slow Recovery

(Bloomberg) — China’s factory deflation deepened in May and consumer price gains slowed, signaling that the recovery isn’t yet strong enough to produce inflation pressures.

  • The consumer price index rose 2.4% last month from a year earlier, following a 3.3% gain in April, the National Bureau of Statistics said Wednesday. The median forecast was for a 2.7% increase.
  • Factory deflation worsened, with the producer price index registering a 3.7% decline on year, after a 3.1% drop in April.

Key Insights

  • Gains in pork prices, which are a key element in the country’s CPI basket and have been driven by an outbreak of pig disease, slowed to just under 82% after a 97% increase the previous month. Overall food inflation climbed 10.6%.
  • Core inflation, which excludes the more volatile food and energy prices, was unchanged a 1.1%.
  • PPI deflation will continue due to the severe slump in demand caused by the coronavirus outbreak, while CPI will slow in the second half of 2020 mainly due to the comparison with faster inflation last year, Lu Ting, chief China economist at Nomura Holdings (NYSE:NMR) Inc. in Hong Kong, wrote in a report last week. “Falling CPI inflation and continued PPI deflation will provide Beijing with more policy space to roll out policy easing/stimulus measures to offset the impact of Covid-19 on the economy.”
  • China’s economy continued its slow recovery in May, the earliest indicators showed, with domestic demand gaining momentum even as the global picture remained sluggish.
  • However an official gauge of China’s manufacturing activity slipped back in the month, exports fell and imports plunged 16.7%, indicating domestic demand is still weak.

(C)2020 Bloomberg L.P.

China’s Factory Deflation Deepened in May Amid Slow Recovery

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