Deflationary pressure in China has continued for the fourth consecutive month, reflecting weak domestic consumption amid escalating and increasingly aggressive price wars. Increased spending during the two national holidays in May was not sufficient to offset the weak demand. Data from China’s National Bureau of Statistics, cited by Bloomberg on Monday (June 9, 2025), recorded the consumer price index (CPI) dropping by 0.1% year-on-year (YoY) in May, consistent with the previous month’s decline and slightly better than the Bloomberg economists’ consensus forecast of a 0.2% decrease. Producer price deflation also extended its negative streak to the 32nd month.

The producer price index (PPI) contracted by 3.3% compared to the previous year — the steepest decline in nearly two years. NBS chief statistician Dong Lijuan explained that the sharp drop in PPI was influenced by the high price base from last year and declines in global oil and chemical prices. Domestically, excess coal and raw material inventories further deepened price pressures. This situation is complicated further by a combination of declining property prices and increasingly fierce price competition among businesses, which has eroded consumer and business confidence. A recent example is automaker BYD Co., which cut prices by up to 34% on nearly a dozen electric and plug-in hybrid models — raising concerns of a new wave of discounts that could damage automotive manufacturers’ margins.

Although spending momentum improved during the early and late May holidays, mainly in the services and tourism sectors, this only provided a temporary respite from deeper structural pressures. External risks also loom, particularly from trade tensions with the United States. While communication between President Donald Trump and President Xi Jinping last week opened up a channel for dialogue, uncertainty remains high.

Trade delegations from both countries are scheduled to meet in London on Monday local time. However, the short-term impact of U.S. tariffs on employment and income could hinder recovery in purchasing power, forcing businesses to continue lowering prices. Morgan Stanley economists led by Robin Xing warn that deflationary trends will worsen and predict China’s economic growth will sharply slow in the second half of 2025, alongside weakening exports and consumer spending. The International Monetary Fund (IMF) projects China’s consumer inflation will average only zero percent this year — the lowest level among nearly 200 monitored countries, and the weakest inflation China has experienced since the 2009 global financial crisis.

Purchasing managers’ surveys also indicate weakening output prices in both manufacturing and services sectors. In May, discount rates in the services sector recorded the deepest level in eight months, according to Caixin and S&P Global reports. The latest Bloomberg survey of 67 economists suggests deflationary pressure will deepen further. Consumer inflation is forecasted to grow only 0.3% in 2025 — the lowest prediction since the survey began in 2023. Meanwhile, the PPI is expected to plunge 2%, worsening from the previous estimate of 1.8%.