China's May CPI Falls for Fourth Straight Month, PPI Deflation Eases to Two-Year Low

China's consumer prices declined 0.1% YoY in May, marking the fourth consecutive month of deflation. The slight dip underscores ongoing issues such as US trade tensions, sluggish domestic demand, and job security anxieties. The PPI deflation eased to a two-year low, but overall inflation remains a concern for the Chinese economy.

Beijing, June 9, 2025 — China's consumer prices fell by 0.1% year-on-year in May, marking the fourth consecutive month of deflation. This decline underscores persistent economic challenges, including US trade tensions, sluggish domestic demand, and job security concerns. While producer price index (PPI) deflation eased to a two-year low, overall inflation remains a significant concern for the Chinese economy.

The consumer price index (CPI), a key gauge of inflation, fell 0.1% from a year earlier, according to data from the National Bureau of Statistics (NBS) released on Monday. This figure slightly exceeded the median estimate of a 0.2% decline among analysts polled by Reuters [1]. The CPI had already slipped into negative territory in February, posting year-on-year declines of 0.1% in March and April.

Core inflation, excluding food and energy prices, rose 0.6% in May, the highest since January 2025, according to Wind Information. Meanwhile, deflation in factory-gate or producer prices deepened, falling 3.3% from a year earlier, marking the steepest decline since July 2023 and a sharper drop compared to analysts' estimates of a 3.2% fall [2].

The wholesale prices have remained in deflationary territory since October 2022. Zhiwei Zhang, president and chief economist at Pinpoint asset management, attributed the downward pressure on consumer prices to weak domestic demand and a brutal price war in the automotive industry. He noted that falling property prices also contributed to the downward pressure [1].

Chinese policymakers have urged the automotive industry to halt the price wars, which have hurt businesses' profitability and efficiency. The persistent deflationary pressures have led the NBS Chief Statistician Lijuan Dong to emphasize the need for "more forceful and targeted stimulus measures to boost consumption" [1].

On May 7, Chinese top financial regulators unleashed a flurry of policy steps aimed at bolstering the country's tariff-hit economy. The central bank cut the key interest rates by 10 basis points to historic-low levels and lowered the reserve requirement ratio by 50 basis points. These measures followed the ratcheting up of US tariffs on Chinese goods to prohibitive levels of 145% by US President Donald Trump, prompting Beijing to retaliate with duties and other restrictive measures [1].

The temporary trade truce with the US appeared shaky as tensions flared up again between the two sides. On May 12, the economy received some relief after the U.S. and China struck a preliminary deal in Geneva, Switzerland, that led both sides to drop a majority of tariffs. However, renewed trade talks in London are set to take place later in the day, as both sides accuse each other of violating the Geneva agreement [1].

The second-round of meetings comes after tensions flared up again between the two sides, as they accused each other of violating the Geneva agreement. Washington blamed Beijing for slow-walking its pledge to approve the export of additional critical minerals to the US, while China criticized the US decision to impose new restrictions on Chinese student visas and additional export restrictions on chips [1].

As the temporary trade truce with the US appeared shaky, markets are watching whether Beijing will roll out more monetary easing to boost the economy. The annual Lujiazui forum, scheduled to be held later this month in Shanghai, is expected to reveal major financial policies, including potential further reductions in the reserve requirement ratio (RRR) [1].

China is also due to report its trade data for May later on Monday, which is expected to show exports rose 5% year on year while imports fell 0.9% from a year earlier, according to a Reuters poll [1].

References:
[1] https://www.cnbc.com/2025/06/09/china-cpi-ppi-may-deflation.html
[2] https://www.scmp.com/economy/china-economy/article/3313581/chinas-consumer-prices-fall-fourth-month-may-amid-weak-demand-trade-tensions