China’s inflation in May 2024 rose by 0.3% YoY but remained low, while the producer price index fell for the 20th consecutive month

• Chinese inflation continued to expand for the 4th consecutive month. China’s Consumer Price Index (CPI) increased by 0.3%YoY in May 2024, at the same pace as seen in April 2024, boosted by price indices in the service sector such as health-related businesses and tourism. In addition, although pork prices (+4.6%YoY) and vegetable prices (+2.3%YoY) increased, the overall food prices index remained a factor keeping inflation growth at a low level. The core CPI stood at 0.6%YoY.
• The Producer Price Index (PPI) declined for the 20th consecutive month, but the rise in commodity prices such as copper and gold resulted in a slower rate of decline. In May 2024. the PPI was at -1.4%YoY, compared to -2.5%YoY in April 2024. Prices of other consumer-related products continued to decline. Going forward, the PPI is expected to remain under pressure from excess production capacity in some Chinese industries.
• For the remainder of 2024, China’s inflation is likely to continue its positive growth, supported by a low base and increased utility costs, such as the high-speed train fares, water bill, etc., which will act as supply-side factors boosting China's inflation. However, these increases will also reduce consumer purchasing power, limiting the extent of inflation growth. In addition, the continuing trend of decline in the PPI will continue to exert downward pressure on product prices.
• Domestic demand in China is likely to expand within a limited range, as reflected by the retail sales index in April 2024, which increased at a slower rate of 2.3%YoY as compared to 3.1% YoY, driven mainly by the service sector (+4.4%YoY). Meanwhile, consumer confidence remained low due to issues in the real estate sector and concerns about the labor market. The youth unemployment rate remained high at 14.7% in April 2024.
• Economic stimulus measures are still necessary to restore consumer confidence and spending within the country. The People’s Bank of China is likely to reduce interest rates further, given the low inflation levels. Meanwhile, Chinese authorities may introduce additional targeted economic stimulus measures such as measures to support the real estate sector. Attention must be paid to the Third Plenum of the Central Committee of the Communist Party of China scheduled for July 2024.

Scan QR Code