China’s vehicle sales continue to improve in a small indicator of recovery domestic demand, but consumer price and factory gate inflation is now starting to concern economists.
Figures out on Thursday show auto sales in May rose 14.5% from the same month in 2019, the second consecutive month of increase after the lows hit during coronavirus lockdowns.
Sales in May rose to 2.19 million vehicles, showed data from the China Association of Automobile Manufacturers.
May’s rise followed a 4.4% increase in April and a record 43% slump in March when the pandemic pummelled demand.
Before April’s rise, sales had fallen for almost two years.
But sales in May of new energy vehicles (NEVs) fell for an 11th month to 82,000 units. NEVs include battery-powered electric, plug-in petrol-electric hybrid and hydrogen fuel-cell vehicles). Sales are weak because the government has removed incentives to buyers.
Meanwhile, the May inflation data from China’s National Bureau of Statistics suggested that the world’s second-largest economy may have a looming problem with disinflation and perhaps deflation.
For yet another month the producer price index fell in May – down 3.7% year on year after a 2.1% slide in April.
It was the steepest deflation rate since March 2016 and was driven by the coronavirus outbreak.
Meanwhile, consumer price inflation grew at an annual 2.4% in May – down sharply from the 3.3% annual rate in April and the lowest rate in 14 month.
The month on month fall was 0.8% after the 0.9% slide in April.
This was the lowest figure since March 2019 and came amid government control measures to contain the COVID-19 outbreak. Food inflation eased to a 9-month low of 10.6% from 14.8% in April, with pork prices rising for 15th month but at a slower rate (81.7% vs 96.9%).
Non-food inflation was unchanged at 0.4% as cost of other goods and services rose by 5.3%, the same as in April,
“CPI disinflation is very rapid…If this trend continues, CPI will turn into deflation” as soon as the end of the third quarter, Zhou Hao, an economist at Commerzbank AG was quoted by Bloomberg.
