Inflation data from China suggest stalled economic recovery

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China’s factory prices rose at the fastest pace since 2016 in May while consumer prices increased less than anticipated amid growing concern of reduced demand in the world’s second-largest economy.

While the US and Europe face a constant struggle to curb rising inflation, China may encounter the opposite problem. Activity surged in the first quarter after removing restrictions imposed during the pandemic, but the momentum seems to be disappearing, and analysts warn that recent data may indicate that the country is approaching deflation and a broader economic recession.

According to data from the National Bureau of Statistics, China’s Producer Price Index (PPI) decreased by 4.6% in the past month. It was the eighth consecutive monthly decline. Meanwhile, consumer prices rose by 0.2% year-on-year, slightly higher than April’s figure but failing to meet growth predictions of 0.3%.

The discouraging inflation data released on Friday came despite Beijing’s numerous efforts to maintain local liquidity. This week, China’s largest state-owned banks reduced deposit rates in yuan, which may signal that the People’s Bank of China is planning a broader interest rate cut.