China's inflation remains close to 0%.

Newly released consumer price and producer price indices show that the world's second-largest economy continued to weaken in May.

According to China's National Bureau of Statistics, the country's consumer price index (CPI) rose 0.2% in May compared to the same period last year. This rate matched forecasts and was up from 0.1% in April. Core inflation (excluding volatile energy and food prices) slowed to 0.7%, falling to 0.6%.

Meanwhile, the Producer Price Index (PPI) fell 4.6% in May, a larger decline than the previous month and also its worst performance in seven years. This was due to falling commodity prices and weakening domestic and international demand. Economists had previously forecast a 4.3% drop. This marks the eighth consecutive month of PPI decline.

People shop at a market in Beijing, China. Photo: Reuters

The latest inflation figures show that the world's second-largest economy continued to weaken in May. Prior to that, a series of other reports indicated a contraction in manufacturing activity, a decline in exports for the first time in three months, and a slowdown in the recovery of the housing market.

While the US and Europe grapple with high inflation and rising interest rates, China is grappling with falling prices. "The risk of deflation continues to weigh on the economy. Recent indicators signal cooling economic activity," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

Deflation is defined as a sustained and large-scale decrease in the prices of goods and services over a given period. This is not a positive development for the economy. When consumers and businesses delay spending in anticipation of further price drops, economic problems worsen.

Analysts believe that the People's Bank of China (PBOC) will lower the one-year lending rate as early as next week. This is aimed at stimulating growth and boosting business and consumer confidence.

The PBOC has kept its one-year lending rate unchanged since September 2022. Therefore, to support small businesses, they are using other tools, such as selective lending.

Several major state-owned banks lowered deposit interest rates on June 8th. This move is seen as paving the way for a reduction in lending rates.

Ha Thu (according to Bloomberg, Reuters)

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