China’s producer prices plunge the most in seven years as deflation hangs over economy

Inflation in China stayed at low levels in May, as the economy struggles to recover even after its strict Covid lockdown measures lifted late last year.

Producer price index in May fell 4.6%, compared to a decline of 3.6% in April. A Reuters poll showed economists expected to see a decline of 4.3% in producer prices.

The reading marked the steepest year-on-year drop in seven years, when producer prices saw a year-on-year drop of 7.2% in May 2016.

China’s consumer price index in May rose 0.2% compared to a year ago, government data showed. Economists surveyed by Reuters expected a 0.3% rise. CPI in April was at a two-year low of 0.1%.

Month-on-month, prices fell 0.2% — economists predicted a 0.1% decline.

China’s low consumer inflation and deflation in its producer prices come in contrast to relatively high inflation in major economies around the world.

Global central banks, including the U.S. Federal Reserve, have been fighting to bring down rising prices for more than a year. Just this week, Canada and Australia defied expectations and raised interest rates.

After the release , the onshore Chinese yuan weakened 0.06% after to 7.1154 against the U.S. dollar. The CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, shed 0.2% and last traded slightly above the flatline.

The latest data is among a batch of economic indicators that point to a cooling economy in China.

Pinpoint Asset Management’s Zhiwei Zhang said, “The risk of deflation is still weighing on the economy. Recent economic indicators send consistent signals that the economy is cooling.”

Zhang expects the Chinese government’s next fiscal policy review to take place after its second quarter gross domestic product is released next month.

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