China: Decrease vitality costs and weak demand saved up deflationary stress in Might – UOB Group
China’s Shopper Value Index (CPI) deflation continued into the fourth straight month in Might. Headline CPI fell by -0.1% y/y (Bloomberg est: -0.2%; Apr: -0.1%) because of declining home meals costs and weak vitality costs. Nevertheless, core CPI (excluding meals & vitality) stayed optimistic and edged up barely to 0.6% y/y in Might from 0.5% y/y within the two previous months, UOB Group’s economist Ho Woei Chen reviews.
China is in deflation
“China’s Shopper Value Index (CPI) deflation continued into the fourth straight month in Might because of declining home meals costs and weak vitality costs. The NBS estimated that 70% of the whole sequential decline within the CPI of -0.2% m/m is attributed to the vitality costs.”
“The Producer Value Index (PPI) deflation widened greater than anticipated to -3.3% y/y in Might, the most important month-to-month drop in 22 months. The downward pattern of worldwide crude oil costs has affected the worth decline of home oilrelated industries. Nevertheless, manufacturing facility costs for shopper items fell at a extra reasonable tempo.”
“In Jan-Might, headline and core CPI averaged -0.1% y/y and 0.4% y/y respectively whereas PPI averaged -2.6% y/y. We keep our forecast for 2025 CPI at 0.0% whereas revising our forecast for PPI to -2.5% from -2.0%. For the financial coverage, we count on an extra 10-bps rate of interest minimize in 4Q25 with the 7-day reverse repo price, 1Y LPR and 5Y LPR to finish the yr at 1.30%, 2.90% and three.40% respectively. The prospect of one other 50-bps minimize to the RRR stays.”
