Deepening deflationary trends in China

Alexander Kuptsikevich FxPro

Inflation in China remains worryingly weak, official producer and consumer price data for May confirmed today.

The CPI was up 0.2% y/y last month, only slightly increased from the 0.1% y/y pace in April.

The producer price index shows that the disinflationary trend is continuing. It has been falling year-on-year for the past eight months, accelerating from 3.6% y/y to 4.6% y/y in May. This is the steepest decline in seven years.

Producer prices are a leading indicator of consumer inflation and the overall economy. The latest data confirms the weakness of the world's second-largest economy.

The shallow inflation frees the People’s Bank of China to stimulate the economy further by cutting interest rates or putting pressure on the renminbi.

As a result, USDCNH quickly rebounded from the previous day's pullback to trade back above 7.14, not far from the highs seen since last November.

Author

Alexander Kuptsikevich

FxPro

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

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