China's Inflation Steady, Maintains Pressure for More Stimulus

• China's consumer inflation held steady in May while producer price declines eased, but the underlying trend suggests Beijing would need to do more to prop up feeble domestic demand and an uneven economic recovery.
• Weak consumption in China has kept a lid on consumer prices since 2023 despite many rounds of support measures as confidence remains low amid a protracted property sector crisis. Economists say a further round of stronger and coordinated fiscal and monetary stimulus steps are required to sustainably increase demand.
• China’s consumer price index (CPI) rose 0.3% in May from a year earlier, matching a gain in April, data from the National Bureau of Statistics (NBS) showed on Wednesday, below a 0.4% increase forecast in a Reuters poll. Producer prices, which have been stuck in deflation since September 2022, fell at a slower 1.4% pace in May after contracting 2.5% in April, compared with a forecast 1.5% decline.
• "For investors, the key question is whether China's PPI inflation could turn positive in the second half of this year, given the recent rise in commodity prices, particularly copper," said Zhou Hao, chief economist at Guotai Junan International. "Overall, today's inflation report suggests that a moderate reflation is still ongoing, while a low inflation is likely to remain the base case," Zhou added.
• China has also vowed to create more jobs linked to major projects, roll out measures to promote domestic demand targeted for youths and pledge greater fiscal stimulus to shore up growth.
(Source: Reuters)