China's May consumer price index (CPI) came in below market expectations. In particular, pork prices, regarded as a practical gauge of consumer inflation, fell by double digits, indicating that the recovery in domestic demand still falls short of expectations. Over the same period, the producer price index (PPI) rose for a third straight month, buoyed by a surge in raw material prices due to the Iran war and a jump in artificial intelligence (AI) investment, marking the fastest increase since July 2022.
China's National Bureau of Statistics said on the 10th that the May CPI rose 1.2% from a year earlier. That slightly missed the market forecast for a 1.3% increase, and the core CPI, which excludes volatile food and energy prices, also came in below expectations with a 1.1% rise, a slowdown from April's 1.2% increase.
Food prices in particular dragged on the overall trend, falling 1.7%. Among them, meat prices fell 7.4% year over year, and pork prices, regarded as a practical gauge of consumer prices, dropped 16.1%, leading the decline. Non-food prices rose 1.9%.
Prices for other goods and services, transport and communications, and medical services rose 9.9%, 5.4%, and 2.1%, respectively, while prices for daily necessities and services, clothing, and education, culture and entertainment rose 1.8%, 1.4%, and 1.3%, respectively, and prices for dwellings fell 0.2%.
Director-General Dong Lijuan of the statistics bureau said, "This was mainly due to declines in energy and service prices. Gasoline prices fell, and service prices also declined as travel demand eased after the Labor Day holiday," adding, "Food prices fell thanks to abundant supplies of fresh vegetables and pork."
PPI rose 3.9% from a year earlier. That slightly beat market expectations for a 3.8% increase and outpaced April's 2.9% rise. Specifically, prices in the mining industry and raw materials industry climbed 15.8% and 9.2%, respectively. This is seen as stemming from ongoing supply uncertainty in raw materials due to the Iran war, along with rising prices for technology equipment amid stronger demand for AI computing.
Bloomberg News said, "The AI boom is fueling demand for Chinese-made electronics, from semiconductor chips to printed circuit boards (PCB), and affecting prices," adding, "Exports for May announced the day before surged more than 19% from a year earlier to the highest in three months, mainly due to a global investment 'supercycle' as hundreds of billions of dollars are poured into building data centers in the United States."
Director-General Dong explained, "In addition, industrial restructuring and upgrading, such as modernizing manufacturing equipment, drove price increases in some areas, and seasonal factors such as the arrival of the summer peak season pushed up prices in some areas."