BEIJING: Deflationary pressures in Chinese industry eased in May while consumer inflation remained relatively steady with just a slight slowdown, official data showed on Thursday, leaving authorities room for further policy easing to boost growth.
The producer price index (PPI), which measures the cost of goods at the factory gate, fell to 2.8 percent year on year last month, much narrower than the 3.4 percent decline in April and also better than the 3.2-percent drop forecast in a Bloomberg News survey of economists.
The figures come after the government promised reforms to cut capacity in the nation’s factories, which has hammered prices and at one point led to fears of deflation, causing a major drag economic growth.
Protracted declines in PPI bode ill for industrial prospects, but May’s result fuelled hopes the world’s number two economy and key driver of global growth could be reaching the bottom of a painful slowdown.
Thursday’s result comes a day after trade statistics showed imports fell last month at their slowest rate since October 2014.
While broadly encouraging, they are upbeat enough to provide hope for the economy while also giving authorities the room to unveil growth-boosting stimulus measures.
“We anticipate a further recovery in producer price inflation in the coming quarters as commodity price deflation continues to ease, with a return to positive territory by the end of year now looking likely,” Julian Evans-Pritchard, of Capital Economics, said.
“The upshot is that inflation is unlikely to become a major concern for policymakers this year, allowing them to focus on more pressing issues such as financial stability and structural reform.”
However, the consumer price index (CPI)—a main gauge of inflation—rose 2.0 percent on-year, the National Bureau of Statistics said, slowing from April’s 2.3 percent and the 2.2 percent median forecast in the Bloomberg survey.
Month-on-month, the CPI dropped 0.5 percent, which NBS analyst Yu Qiumei attributed to falling prices of fresh vegetables.
“Early in the year, a cold snap hit most parts of China, affecting the production and transport of fresh vegetables,” he said, adding:
“As this season’s fresh vegetables come to market, gradually increasing market supply, the prices of fresh vegetables has returned to normal.”
Moderate inflation can be a boon to consumption as it pushes buyers to act before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.