Daily Management Review

Sharp Increase In China's Factory Gate Deflation In May As Demand Falls


Sharp Increase In China's Factory Gate Deflation In May As Demand Falls
May saw a faster-than-expected decline in factory gate prices in China, as weakening demand put a strain on manufacturing and the shaky economic recovery.
China, in contrast, is experiencing a significant decrease in prices with companies receiving less for their products as demand is squeezed in the US and Europe by rising interest rates and inflation.
According to the National Bureau of Statistics (NBS), the producer pricing index (PPI) for May decreased for the eighth consecutive month, dropping 4.6%. It was greater than the 4.3% drop in a Reuters poll and the fastest decline since February 2016.
The consumer price index (CPI) increased by 0.2% year over year after increasing by 0.1% the month prior, falling short of the forecasted growth of 0.3%.
Although recent data revealed that manufacturing activity decreased and imports decreased in May, China's economy expanded faster than anticipated in the first quarter.
"The risk of deflation is still weighing on the economy," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "Recent economic indicators send consistent signals that the economy is cooling," he added.
Following a decline in the Chinese currency yuan following the release of the CPI data, the Australian dollar weakened 0.2% to $0.6704.
The People's Bank of China (PBOC) may lower interest rates or inject more money into the banking sector, according to some economists. In March, the bank reduced the reserve requirement ratio for lenders.
"So far, monetary policy and fiscal policy have remained tight, along with lower income growth, so domestic demand is depressed," said Dan Wang, chief economist at Hang Seng Bank China.
The largest banks in China said on Thursday that they have decreased interest rates on deposits, offering some respite to the financial industry and larger economy by reducing the cost of borrowing and relieving pressure on profit margins.
In light of persistent signals of deceleration, analysts have started revising downward their predictions for annual economic growth. After miserably failing to achieve its 2022 aim, the administration has set a moderate GDP growth target of roughly 5% for this year.