- Liu Yaxin, macro strategist at China Merchants Securities
China's consumer inflation declined in May, while factory prices slumped under pressure from a slowing economy, fuelling concerns about deflationary pressure in the world's second-biggest economy. China's consumer-price index climbed 1.2% in the reported month from a year earlier, slower than the annual 1.5% increase in April, according to the National Bureau of Statistics. China's inflation rate appeared to be slightly weaker than analysts' expectations and well within the government's goal of maintaining consumer inflation below 3% this year. Meanwhile, the producer-price index, which measures prices of goods at the factory gate, plunged 4.6% in May from the previous year, matching a 4.6% year-on-year decline in April but slightly worse than market consensus forecast. Factory-level prices have now been falling for 39 consecutive months since March 2012 as weak demand results in excess capacity in key industries like steel and cement and drives prices lower.
Inflation in China has decelerated significantly over the last few years as the economy has continued to slow, igniting concerns about deflation risks. China's economy is set to grow at the slowest pace in more than twenty years this year, even as policy makers continue to add new measures to support growth. The main downside pressure comes from the property sector, which, after years of unsustainable investment growth, now experience an abundance of excess capacity, driving prices down and sapping investor demand.
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