A market in Shenyang in Liaoning province. Food prices rose 10.6% last month, retreating from a 14.8% increase in April.
Photo: str/Agence France-Presse/Getty ImagesChina’s industrial deflation worsened in May, with factory-gate prices falling at their fastest pace in more than four years as the coronavirus pandemic crushed global demand for commodities.
The country’s producer-price index dropped 3.7% in May from a year earlier, China’s National Bureau of Statistics said Wednesday. May’s fall was bigger than April’s 3.1% decline and slightly sharper than economists had expected.
Sluggish demand from the U.S. and Europe weighed on commodities, dragging down prices offered by China’s industrial wholesalers, said Yang Weixiao, an economist at Kaiyuan Securities.
“External pressure was the main driver in May,” Mr. Yang said.
Prices charged by oil and gas extractors tumbled 57.6% last month from a year earlier, compared with a 51.4% fall in April, official data showed. Fuel-processing prices dropped 24.4% in May, extending a near 20% decline in April.
Steeper industrial deflation will probably eat into the profitability of Chinese factories, which showed improvement in April after China eased pandemic controls and moved to restart its economy, economists said.
Meanwhile, China’s consumer inflation dropped to a 14-month low in May because of easing food inflation. The consumer-price index rose 2.4% from a year earlier, slowing from April’s 3.3% growth and a tad lower than economists had expected.
Food prices rose 10.6% last month, retreating from a 14.8% increase in April, while nonfood prices increased 0.4%, the same as in April. Of the nonfood items, fuel costs dropped 22% in May compared with April’s 20.5% decrease.
Pork-price inflation in China continued to moderate from the effects of swine fever in May. Pork prices climbed 81.7%, slowing from a 96.9% increase in April. Still, pork prices, boosted the headline index by nearly 2 percentage points.
Cooling consumer inflation and continued industrial deflation should provide Beijing with more room to implement policy stimulus to help alleviate shocks from the pandemic, Nomura economists said in a note to clients.
The central bank will have to continue adding liquidity by trimming the portion of deposits banks are required to set aside as reserves, among other measures, according to Nomura.
Pan Gongsheng, a central bank vice governor, said last week that the pandemic’s impact on the Chinese economy was bigger than expected. More monetary support measures would be rolled out to support growth and job markets, he said.
China’s economy is expected to register 1% growth this year, down from a little over 6% in 2019, with the global economy likely to shrink by about 5.2%, the World Bank said Monday.
However, a recent rebound in commodity prices following the reopening of major economies around the world, combined with a construction-led recovery in domestic demand in China, means China’s industrial prices will likely bottom out in the coming months and climb out of deflationary territory by the end of the year, said Mr. Yang, of Kaiyuan Securities.
Domestically, there has been “an apparent shift” in policy stance, from stabilizing economic growth to preventing risk, the Beijing-based economist said. That suggests policy makers would be unlikely to unleash more stimulus measures as China’s deflation risk recedes.
After the central government’s scrapping of an annual economic growth target and dovish policy statements from the central bank, China’s Finance Ministry sounded the alarm about rising debt.
In a meeting with local-government officials on Monday, China’s Finance Minister Liu Kun warned about debt risks from efforts to offset shocks from the coronavirus pandemic, urging officials to consider the long-term after effects of attempts to solve short-term problems.
—Liyan Qi and Bingyan Wang contributed to this article.
Write to Josh Chin at josh.chin@wsj.com
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