Chinese CPI YoY Actual -0.1% (Forecast -0.2%, Previous -0.1%); PPI YoY Actual -3.3% (Forecast -3.2%, Previous -2.7%)

Chinese CPI YoY Actual -0.1% (Forecast -0.2%, Previous -0.1%); PPI YoY Actual -3.3% (Forecast -3.2%, Previous -2.7%)

In May, China's Consumer Price Index (CPI) and Producer Price Index (PPI) data revealed a continuation of deflationary trends, with year-over-year (YoY) inflation rates slowing further. The CPI YoY actual rate was -0.1%, slightly above the forecasted -0.2% and the previous month's -0.1% [1]. Meanwhile, the PPI YoY actual rate declined to -3.3%, slightly below the forecasted -3.2% and the previous month's -2.7% [1].

The CPI data highlighted persistent weakness in domestic demand, driven by elevated US tariffs that are weighing on manufacturing margins and driving stockpiles higher. Food prices fell by 0.2%, services rose by 0.3%, while broader goods and clothing prices gained 6.6% and 1.3%, respectively, pointing to narrow cost-push inflation pockets rather than a healthy consumption base [1].

The PPI data further underscored the deflationary pressures in the economy, with analysts at ING attributing the decline to price competition and ongoing cost-cutting [1]. The tariffs imposed in April are expected to continue to affect consumer prices, with Fed's Goolsbee warning that April's inflation data might be the "last vestige" of lower inflation before tariff impacts emerge [1].

The data has been flagged as a fresh warning shot for policymakers, with the South China Morning Post noting that "tariffs remain prohibitively high and continue to stifle bilateral trade" [1]. Analysts at ING anticipate inflation to remain largely unchanged from April's -0.1% year-on-year reading, with persistent deflationary pressures expected to continue [1].

The trade balance data for May also showed resilience, with expectations for the trade surplus to expand to USD 101.3bln from 96.18bln; exports forecast at 5% vs. prev. 8.1%, imports -0.9% vs. prev. -0.2% [1]. The export strength followed a front-loading rush ahead of the 145% US tariffs implemented on April 9th, while the modest import decline hints at tentative stabilisation in domestic demand [1].

In other news, Apple's Worldwide Developers Conference (WWDC) is set to start on Monday, with pressure on the tech heavyweight to build on its prior promises. The conference is expected to unveil major updates across all its platforms, including iOS 26, macOS 26, iPadOS 26, watchOS 26, and more [1].

References:
[1] https://www.tradingview.com/news/forexlive:215cbe5b2094b:0-newsquawk-week-ahead-us-cpi-china-cpi-and-trade-data-uk-jobs-gdp-and-aapl-wwdc/

Ask Aime: Understanding China's deflationary trends and their impact on US markets