通货紧缩压力要求进一步的财政刺激

China Economy Deflation pressure callsfor additional fiscalstimulus FrankLiu(852) 3761 8957frankliu@cmbi.com.hk May CPI remained negative for the 4th consecutive month, indicating themounting deflation pressure following the tariff shock. While energy prices werethe primary drag, broader price levelsremained subdued across categories.Durable goods pricesdipped amid weakening demand and intensifying pricecompetition, while service pricesmoderated after the national holidays. PPIfurther deteriorated due to sliding energy prices and soft domestic constructionactivities. The tariff shock has weakened both domestic and external demand,exerting further deflation pressure while the ramped-up supply-side productionofferslittle offset. China economy may face further headwinds in 2H25 giventhe intensifying deflation, softening property sector and payback effect fromthetrade-in scheme.China may launch additional fiscal expansion andconsumption stimulus after reaching a trade deal with the US as the deal wouldrefer to a rebalance of China economytowards more consumption and lessproduction.We estimateCPI and PPI may rise from 0.2% and-2.2% in 2024 to0.3% and-2% in 2025. Bingnan YE, Ph.D(852) 3761 8967yebingnan@cmbi.com.hk CPI stayed negative for the4thconsecutive monthamid falling foodand energy prices.China’sCPIYoY stayed flat at-0.1% in May, slightlyabove market expectation at-0.17%.In sequential terms, CPIdipped to-0.2% in May from 0.1% in Apr.Vehicle fuel price was the major drag,dropping 3.7% MoM as global crude oil price remained subdued in May. Weexpectthe vehicle fuel price to edge up in June astheNDRC has raised gasprice in early June. Foodprice dropped 0.2% MoM in May as vegetablepricedipped 5.9% due to abundant seasonal supply. Pork pricealso narrowed itsdecline from-1.6% MoM to-0.7%, butitmay start to dip again as wholesaleprice further declined.High-frequency data indicated continued declines invegetable priceby 1.5% MoM, while pork retail price edged down. Weexpect the CPI to recover mildly in June to 0% due to rebounding energyprices. Forecast numbers fromFeb2025Source: Wind, CMBIGM Core CPIsoftened due to muted durable goods price.Core inflationedged up to0.6%YoYinMay from 0.5%,whileitsMoM growthdropped to0%from0.2%.Durable goods including telecom equipment, vehicles andhomeappliances dropped 0.7%,0.4%and 1.1%respectively,amidweakening demand and intensifying price competition. Itis worth noting thatthe discounts fromthetrade-in scheme are excluded from CPI calculations.Service priceeased to 0% MoM in May from 0.3%, as tourism pricedroppedto 0.8% from 3.1%.Other services remainedsubdued, with no price changerecorded in categories such as education,express andtelecommunicationsservices. PPI further slumped due to sliding global energy prices.YoYcontractionof PPIfurther dipped to-3.3% inMayfrom-2.7%in Apr, missingthe market expectationat-3.2%.The MoM growthremained flat at-0.4%forthe third consecutive month, indicatingworsening deflation in manufacturingsector.PPI ofmining industriesweakened to-2.5% MoM. Energy-relatedcommodities including crude oil & gas and coal saw thenotable MoMdecline of-5.6% and-3%.Ferrousmetalsalso dropped 1% MoM since thedomestic construction activities remained soft.Final consumption goodsmoderately rebounded from-0.2% MoM to 0% in May,as durable goodsnotably surged to 0.1% from-0.7%.We expect the subdued PPIshouldpersistdue tothe drag from trade warand fierce price competition amongmanufacturers, which should further weigh on overall corporate earnings. The deflation pressure calls for additional fiscal stimulus.The tariffshockhas weakened both domestic and external demand, exerting furtherdeflation pressure while the ramped-up supply-side production offerslittleoffset.China economy may face further headwinds in 2H25 given theintensifying deflation, softening property sector and payback effect fromthetrade-in scheme.Policy stance might remain stable and moderate duringtheChina-US trade dealnegotiations. Chinamay launch additional fiscalexpansion and consumption stimulus after reaching a deal with the US asthe deal would refer to a rebalance of China economy towards moreconsumption and less production.In2H25,we expecta further10 bpsLPRcut, along witha possiblymoderate increase in the broad fiscal deficit.Policy may also strengthen transfer payments to low-and middle-incomehouseholds, the social security system, and multi-child families to moreeffectively boost household consumption. Source: Wind, CMBIGM Source:Wind, CMBIGM Source: Wind,CMBIGM Source: Wind, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source: Wind, CMBIGM Source:Wind,CMBIGM Source: Wind,CMBIGM Source: Wind, CMBIGM Source: Wind,CMBIGM Source: Wind, CMBIGMestimates Source:Wind, CMBIGM Source:Bloomberg, CMBIGM Source:Wind, CMBIGM Source:Bloomberg, CMBIGM Source:Wind,CMBIGM Source:Bloomberg, CMBIGM Source:Bloomberg, CMBIGM Source:Wind, CMBIGM Source:Wind, CMBIGM Source:Bloomberg, CM