Chinese consumer prices experienced a fourth consecutive monthly decline in May, data released Monday revealed, underscoring persistent challenges with sluggish domestic spending as the world’s second-largest economy navigates turbulent global trade conditions.
Beijing has struggled to stimulate internal consumption since the lifting of pandemic restrictions, threatening official growth targets and complicating efforts to insulate its economy from escalating tariff policies, particularly from the United States.
Against this backdrop, high-stakes trade talks between representatives from China and the United States are scheduled to commence in London on Monday. These negotiations are being closely scrutinized for any indications of a lasting agreement on tariff reductions.
The National Bureau of Statistics (NBS) reported that China’s Consumer Price Index (CPI), a key inflation gauge, fell by 0.1 percent year-on-year in May. While this figure was consistent with April’s reading, it slightly outperformed the 0.2 percent decline forecast in a Bloomberg survey of economists.
Despite appearing modest, sustained deflation poses a significant threat to the broader economy. It often encourages consumers to defer purchases in anticipation of further price drops, which can compel companies to reduce production, freeze hiring, or implement layoffs, thereby dampening profitability.
“China continues to face persistent deflationary pressure,” noted Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, in a recent analysis. He emphasized that Beijing “needs to rely on domestic demand to fight the deflation.” Zhang also highlighted that while exports have performed robustly, they are “probably slow as the frontloading fades out,” referring to the phenomenon of overseas buyers increasing shipments ahead of anticipated higher tariffs.
Further evidence of the economic slump, now spanning over two years, came from factory gate prices. The Producer Price Index (PPI) registered a 3.3 percent decline in May, accelerating from a 2.7 percent drop in April and exceeding the 3.2 percent decline estimated by Bloomberg.
The London talks mark the second formal round of negotiations between the world’s two largest economies since U.S. President Donald Trump initiated his global trade policies in April. The initial round, held in mid-May in Geneva, resulted in a temporary pause in escalating tariffs but failed to yield a comprehensive trade agreement.
Expected participants in the latest negotiations include Chinese Vice Premier He Lifeng, U.S. Treasury Secretary Scott Bessent, and Commerce Secretary Howard Lutnick. The talks follow a phone call last week between President Trump and Chinese President Xi Jinping, which President Trump characterized as “very good.” Trade figures for last month, also due later on Monday, are anticipated to provide further insight into the performance of China’s export sector.
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