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  • By The Financial District

China's Factory Inflation Sputters To 14-Month Low

In May, China's factory-gate inflation cooled to its slowest pace in 14 months, weighed down by weak demand for steel, aluminum, and other key industrial commodities due to tight COVID-19 curbs, and bucking the global trend of rapidly accelerating prices, Lianging Gao, Ellen Zhang and Ryan Woo reported for Reuters.

Photo Insert: The Huafu Fashion Co. Ltd. textile mill in Xinjiang is the largest in the world for colored yarns.



The producer price index (PPI) rose 6.4 percent year on year in May, according to the National Bureau of Statistics (NBS), following an 8.0 percent increase in April and matching forecasts in a Reuters poll.


The reading was the lowest since March 2021. The consumer price index (CPI) rose 2.1 percent year on year in May, matching April's increase. According to Reuters, the CPI is expected to rise 2.2 percent.



"Factory gate inflation will continue on its downward trajectory throughout the rest of the year," said Sheana Yue, China Economist at Capital Economics.


"Further policy rate cuts before long – the first of which might come as soon as next Wednesday," she noted, referring to the People's Bank of China's medium-term liquidity operations next week.


All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

The slowing inflation stands in stark contrast to the decades-long highs seen in other major economies, and it reflects a drop in demand caused by China's strict COVID-19 controls, which have slowed factory and retail activity in recent months.


The low inflationary pressures also allow China's central bank to release more stimulus to support the economy, while monetary authorities in most other countries scramble to stoke inflation with aggressive interest rate hikes.


China's cabinet also announced a package of 33 measures to revive its economy in late May, covering fiscal, financial, investment, and industrial policies.



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