Inflation in China remained low in May despite lifting strict coronavirus lockdown measures late last year. Economists polled by Reuters had expected the consumer price index to rise 0.3% from a year earlier, but it only increased by 0.2%. Meanwhile, the producer price index fell by 4.6%, and economists expect it to drop by 4.3%, the biggest decline in seven years. These latest economic indicators highlight a cooling in China’s economy as it struggles with slowing demand and declining exports.
Central banks around the world, including the US Federal Reserve, have been battling to control inflation for more than a year. However, China’s low consumer inflation and producer price deflation contrast with China’s relatively high inflation. Canada and Australia have recently raised interest rates unexpectedly. Theonshore Chinese yuan fell 0.06% against the US dollar to RMB7.1154 after their announcements. The CSI 300 index, which tracks the largest listed companies in Shanghai and Shenzhen, recently traded just above the flat line.
Zhiwei Zhang of Pinpoint Asset Management commented on the situation, “The risk of deflation still weighs on the economy. Recent economic indicators consistently show that the economy is cooling.” He expects the Chinese government to conduct its next fiscal policy review after the next second-quarter gross domestic product release. These latest developments are part of a series of economic indicators pointing towards a cooling in China’s economy.
In conclusion, China’s low inflation and declining producer prices reflect a cooling economy as it continues to grapple with the aftermath of COVID-19’s strict lockdown measures and slower demand for exports.