China’s consumer prices edge up as factory deflation eases

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China’s consumer price growth was weaker than expected in May while factory price deflation eased slightly as the world’s second-largest economy tried to shake off weak domestic consumption and investor sentiment.

The consumer price index rose 0.3 per cent in May, official data from the National Bureau of Statistics showed on Wednesday, equalling the previous month’s increase but less than a forecast of 0.4 per cent growth by a Reuters poll of analysts.

The producer price index declined 1.4 per cent in May, easing from a 2.5 per cent contraction in April. Analysts had forecast a fall of 1.5 per cent as Chinese industry received a boost from strong exports last month.

While the data marked an improvement from previous months in which China flirted with deflation, Wednesday’s release underlined a mixed picture for the economy.

Exports are booming, but China is facing increasing opposition from trading partners, which allege the country’s industrial drive is resulting in dumping of low-cost goods on their markets.

Europe is expected to impose tariffs on Chinese electric vehicles after an anti-subsidy investigation, while the US has applied 100 per cent duties.

Domestic consumption in China, meanwhile, is picking up on some fronts, with more people travelling and eating out, but many are holding off on buying big-ticket items, notably property, which is in a prolonged slump.

The latest test of consumer sentiment, the Dragon Boat Festival holiday at the weekend, showed overall travel was high but per-trip spending was 10.5 per cent below pre-pandemic levels in 2019.

HSBC said this partly reflected “ongoing pressures on consumer confidence as well as potential shifts in spending patterns”.

China has increasingly relied on exports and industrial investment to meet its official target of about 5 per cent GDP growth in 2024. Exports rose 7.6 per cent year on year in dollar terms in May, beating expectations.

Beijing is also trying to boost industry domestically through “trade-in” policies, such as allowing consumers to upgrade home appliances at a discount and industry swapping out old machinery.

From January to May, home appliance trade-in sales on big ecommerce platforms increased 82 per cent year on year. Passenger car retail sales volume climbed 10 per cent last month on the previous month.

This week, the Ministry of Transport and other departments also announced a plan to encourage the upgrade of older buses, trucks, ships and trains to more energy-efficient options.

“The ongoing promotion of upgrading policies are likely to help further lift manufacturing and infrastructure investment this year,” HSBC said in a research note.

The government has also announced various policies to reduce China’s inventory of unsold housing, including a Rmb300bn ($41bn) fund for local governments and state-owned enterprises to convert unused properties into social or affordable housing. But more efforts are needed, analysts said, as unused housing stock continues to grow.

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