China's producer, consumer prices point to risk of deflation

By Emre Aytekin

BEIJING (AA) - The continuing decline in producer prices and stagnation in consumer prices in China is exacerbating concerns about the risk of deflation.

In May, producer prices fell 4.6% compared to the same period of the previous year, while consumer prices inched up 0.2% on an annual basis, according to the National Bureau of Statistics of China on Friday.

While the seven-month downward trend in producer prices continued in May, the slight increase in consumer prices below expectations points to the risk of medium- and long-term deflation.

Dong Licuen, a senior expert at the statistical bureau, said the downward trend in international commodity prices, weak demand for industrial products in domestic and foreign markets, and the high base in prices in the same period of last year played a large role in the fall in producer prices.

In spring 2022, quarantine measures and COVID-19 restrictions in cities where the country's key industrial businesses are located had pushed prices upwards.

Despite the lifting of restrictions at the end of 2022, the fact that producer prices are still unstable shows that the manufacturing sector has not been able to catch up with the recovery momentum and deflation pressure continues.

On the consumer prices side, food prices rose 1% in May, while non-food inflation remained stable.

Core consumer inflation, which excludes food and energy prices, was at 0.6%.

Previously, the government said it aims to keep inflation at around 3% this year.

*Writing by Gokhan Ergocun from Istanbul