Consumer inflation continues to ease in May

China's consumer inflation continued to ease in May as pork price inflation declined, while factory-gate inflation also fell year on year.

The Consumer Price Index, a main gauge of inflation, rose by a weaker-than-expected 2.4 percent last month from a year earlier, 0.9 percentage points slower than April, the National Bureau of Statistics said on Wednesday.

The domestic epidemic situation was generally stable in May, and businesses have resumed work, production and operation in an orderly manner. The market supply and demand situation has been further improved, said Dong Lijuan, a senior statistician at the bureau. 

Food price inflation dropped to 10.6 percent year on year in May from 14.8 percent in the previous month, mainly led by pork price inflation falling to 81.7 percent last month from 96.9 percent in April. 

Lu Ting, chief China economist at Nomura, said: "Despite the fall in pork prices in the previous months, given hog and breeding sow stocks have contracted by around 30 percent since the initial outbreak of African swine fever in August 2018, we continue to expect hog and pork supply shortages in coming months, which, together with the gradual recovery of catering businesses, may lead to a near-term stabilization and even a slight rebound in hog and pork prices.” 

Beef and lamb price inflation both moderated in May to 19.4 percent year on year and 10.8 percent, respectively, from 20.5 percent and 11.5 percent in April, although this was less significant than the drop in pork price inflation.

Vegetable and fruit price inflation both fell further in May, to drop by 8.5 percent year on year and 19.3 percent, respectively, compared with the declines of 3.7 percent and 10.5 percent in April. Egg price inflation tumbled to post a slump of 12.3 percent year on year in May compared with April’s drop of 2.7 percent.

Non-food price inflation, meanwhile, remained subdued at 0.4 percent year on year in May, unchanged from April.

Transportation and communication price inflation edged down by 5.1 percent year on year in May compared with April’s decline of 4.9 percent, mainly led by transportation-related fuel price inflation, which fell further by 22 percent year on year from the same period’s drop of 20.5 percent.

"This contradicted the rebound in global oil price inflation as global oil prices have been below the floor prices of US$40/bbl set by the National Development and Reform Commission since mid-March, and their recent rebound may not be fully translated into domestic retail prices of oil products," Lu said.

Cost inflation for transportation facilities edged up slightly by 0.1 percentage point to dip 1.9 percent year on year in May, partly due to the restoration of highway tolls across the country from May 6, according to Lu.

On a month-on-month basis, the headline CPI extended the decline by 0.8 percent last month, compared with the drop of 0.9 percent in April.

Food prices drop by 3.5 percent in general, compared with the 4 percent fall in the previous month, to be the major factor dragging down the headline month-on-month CPI. 

Pork price inflation dipped further by 8.1 percent in May from April amid the recovery in supply, while a large number of locally grown fresh vegetables were released to the market, making vegetable prices continued to drop by 12.5 percent, an increase of 4.5 percentage points, according to statistician Dong.

The Producer Price Index, which measures the cost of goods at the factory gate, fell 3.7 percent year on year in May, compared with a 3.1 percent drop in April despite a rebound in prices of global oil and other major raw materials.

The weaker year-on-year PPI inflation print was largely due to a high base of comparison from last May, without which PPI inflation would have posted a decline of 3.2 percent year on year, according to NBS estimates.

In month-on-month terms, PPI inflation dropped by 0.4 percent in May, compared with the decline of 1.3 percent in April.

"We believe falling CPI inflation and continued PPI deflation will provide China with more space to implement policy stimulus to offset the impact of COVID-19 on the economy. The larger-than-expected drop in inflation could also alleviate some recent fears in the bond markets," Lu said.