Chinese inflation to continue falling while foreign trade stalls

China’s National Bureau of Statistics is set to release May inflation data today. Forecasters are expecting May’s inflation rate to

A continer ship in a Chinese port in Shenzhen

Photo: Qilai Shen/Bloomberg

China’s National Bureau of Statistics is set to release May inflation data today.

Forecasters are expecting May’s inflation rate to have slowed to 2.6%, a drop from last month’s 3.3% and a nearly 3% decrease since January. Inflation continues to slow as the government eases control measures intended to arrest rising food and non-food prices, which spiked during the COVID-19 outbreak in China.

Although China is reporting stronger business activity at home, concerns over foreign demand for Chinese goods are on Beijing’s radar, especially given a possible resurgence of the virus in China and the broader region. Southeast Asia, the top buyer of Chinese goods, saw a 1% drop in imports, down from an 8% increase last month. Likewise, Chinese exports to the US and Europe have fallen 11% and 1% respectively this year.

With global economies likely to see slow post-virus recoveries, China’s foreign trade is expected to recover just as slowly in the long term, even as inflation and other indicators at home continue to improve. Moreover, as not just Chinese prices but global energy prices fall, expect China to continue to buy up strategic resources, such as crude oil, to prepare for potential renewal in trade tensions with the US.

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