China's COVID-19 Shock Causes Sharp Drop in PPI... Reflecting Weak Demand (Comprehensive)

May PPI -3.7%... Lowest in 4 Years

[Asia Economy Beijing=Special Correspondent Park Sun-mi] China's Producer Price Index (PPI) for May showed the steepest decline in the past four years, indicating that the industrial sector has yet to recover from the impact of COVID-19.

On the 10th, the National Bureau of Statistics of China announced that the May PPI fell 3.7% year-on-year, a larger drop compared to April's -3.1%. This decline is the largest in four years since March 2016 (-4.3%). The initial market forecast was -3.3%, but the actual figure was worse than expected. The PPI has recorded negative growth for four consecutive months since February.

Compared to the previous month, the PPI fell by 0.4%. Although this is a slight improvement from April's decline of -1.3%, the continuing downward trend reflects the negative situation in the industrial sector. The cumulative PPI from January to May was 1.7% lower than the same period last year.

The PPI is an indicator reflecting prices of raw materials, intermediate goods, and product shipment prices, serving as a leading economic indicator representing the vitality of the manufacturing sector. The negative PPI indicates that China's industrial sector has not yet shaken off the impact of COVID-19. Overseas orders have been canceled or postponed due to COVID-19, meaning Chinese manufacturers are unable to receive their desired prices for products. This situation persists despite the domestic COVID-19 situation calming down, largely due to the global pandemic severely impacting the economies of China's major export markets such as the United States and Europe.

With the PPI remaining in negative territory for an extended period, which could be interpreted as a precursor to deflation, the May Consumer Price Index (CPI) growth rate fell to the 2% range, increasing the Chinese government's capacity to pursue aggressive monetary easing policies without concerns about inflation.

The May CPI growth rate recorded 2.4%, down from 3.3% in April. It also fell short of the market forecast (2.7%), marking the lowest level since March last year (2.3%).

In January, when COVID-19 began to spread significantly, China's CPI surged 5.4% year-on-year. However, following government efforts to stabilize prices and effective COVID-19 control measures, the growth rate slowed to 5.2% in February, 4.3% in March, 3.3% in April, and 2.4% in May. The food price inflation rate was 10.6%, while non-food price inflation was 0.4%. The decline in CPI growth is largely due to the slowdown in food price inflation. Among food items, pork prices rose by 81.7%, down from 96.9% in April. China has set this year's CPI growth target at around 3.5%.

This content was produced with the assistance of AI translation services.