China’s Consumer Prices Plummet Again: What This Means for Deflation Concerns and Weak Demand

China’s consumer prices dropped for the fourth month in a row as of May 2025. This trend shows that efforts by Beijing to stimulate domestic spending haven’t had the desired impact. The consumer price index (CPI) fell by 0.1% compared to last year, slightly better than the 0.2% decline analysts expected. The CPI turned negative in February, posting a 0.7% drop then, which continued through March and April.

Interestingly, while overall prices fell, core inflation—excluding food and energy—rose by 0.6% in May, marking its highest point since January.

On the production side, deflation in factory prices worsened, with a 3.3% decline year-on-year, which was steeper than the 3.2% decline analysts had predicted. The wholesale prices have been in deflation since October 2022, highlighting significant pressure on producers.

The automotive sector is particularly affected by fierce price wars, driving costs down further, as noted by Zhiwei Zhang, an economist. He emphasized that increasing competition is hurting profitability in this industry. Policymakers are pushing for a cease to these price battles, which have made earning profits increasingly challenging for businesses.

Despite strong exports, Zhang pointed out that China needs to focus on boosting domestic consumption to combat deflation. The country’s recent adjustments in economic policy included a 10 basis point interest rate cut and a reduction in the reserve requirement ratio for banks to spur economic activity.

Historically, tensions with the U.S. have affected trade and tariffs. In 2019, tariffs on Chinese goods peaked at 145%, prompting a tit-for-tat response from China. But recent developments indicate a thaw in relations with a preliminary deal leading to reduced tariffs on both sides.

Social media conversations indicate public concern over economic stability. Many are watching to see how the Chinese government will respond. Analysts and economic experts are increasingly calling for better ways to stimulate local spending, especially as reports suggest slowing economic growth.

In upcoming discussions, including the annual Lujiazui forum, China’s financial leaders are expected to reveal new policies to address these challenges. With the next trade data release anticipated to show mixed results—expected 5% export growth but a 0.9% decline in imports—the country’s economic strategy remains a hot topic among analysts and consumers alike.

For those looking for a deeper dive into these economic trends, the National Bureau of Statistics provides ongoing updates and detailed reports.

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