China: Disinflationary pressures remained in place in May – UOB

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest release of Chinese inflation figures.

Key Takeaways

China’s economy continued to experience disinflation in May, contributed by broad-based weakness in both food and services inflation as well as lower commodity prices.

Given the price trajectory, we now expect full-year headline inflation to average 0.8% (2022: 2.0%) compared to our earlier forecast of 2.0% and well-below the government’s target of 3.0% for 2023. Similarly, we revise our PPI forecast for 2023 to -2.0% (2022: 4.1%) from earlier forecast of -1.0%. 

The weak price trend continues to paint an uneven economic recovery in China with increasing hints that authorities are prepared to ease monetary policy further by cutting both banks’ reserve requirement ratio (RRR) and interest rates. There could also be more measures to boost the recovery in China’s property market.