China's Deflationary Pressures Persist in May Amid Weak Energy Prices and Demand

China’s Deflationary Pressure Persists in May – UOB Group

China’s inflation data for May revealed ongoing deflationary pressures, as consumer prices (CPI) dropped for the fourth consecutive month, according to a report from UOB Group.

Headline CPI Declines

• May CPI YoY: -0.1%
• Consensus Estimate: -0.2%
• April CPI YoY: -0.1%

The modest decline in the headline Consumer Price Index (CPI) was largely attributed to continued weakness in domestic food prices and sluggish energy prices, reflecting persistent demand-side weakness in the economy.

Core CPI Shows Modest Improvement

Despite headline deflation, core CPI, which excludes volatile food and energy components, edged higher to 0.6% YoY in May, up from 0.5% in March and April. This signals some resilience in underlying consumption, even as headline figures reflect broader price softness.

UOB’s Assessment

According to UOB Group analysts, the Chinese economy remains under disinflationary strain, but the slight improvement in core CPI is a positive sign. The analysts caution, however, that overall price momentum remains weak, and further stimulus or policy support may be needed if the trend persists.

What’s Driving Deflation in China?

• Soft global energy prices
• Falling domestic food prices (notably pork and fresh vegetables)
• Weak consumer demand and household sentiment
• Lack of strong post-pandemic recovery momentum

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