SCIO briefing on China's economic performance in May 2025

China Financial and Economic News:

From the newly released data, we noticed that the CPI in May decreased by 0.1% year on year, while the core CPI increased by 0.6%. What is the reason for this? How would you assess this phenomenon? Thank you.

Fu Linghui:

Thank you for your questions. In May, the CPI decreased by 0.1% year on year and by 0.2% month on month. The month-on-month change in the CPI turned from an increase to a decrease, with a slight year-on-year decline, mainly due to international factors and the decline in food prices.

First, the decline in international energy prices has led to a decrease in the prices of domestic gasoline and other related consumer goods. The weakening of global economic growth momentum and the significant decline in energy commodity prices have increased the effect transmitted to domestic energy prices, pulling down energy prices in the CPI for May. From a month-on-month perspective, in May, energy prices in the CPI decreased by 1.7%, leading to a decrease of about 0.13 percentage point in CPI, among which gasoline prices decreased by 3.8%, 1.8 percentage points wider than the previous month. From a year-on-year perspective, in May, energy prices in the CPI decreased by 6.1%, 1.3 percentage points wider than the previous month, leading to a decrease of about 0.47 percentage point. Energy prices are the main factor affecting the year-on-year decrease in the CPI in May.

Second, some fresh food has come to market. With sufficient food supply, prices have fallen. In May, the market supply of vegetables, eggs and other foods increased, driving prices downward. From a month-on-month perspective, in May, food prices fell by 0.2%, leading to a decrease of about 0.04 percentage point in the monthly CPI. Specifically, fresh vegetable prices decreased by 5.9%, while prices for eggs, pork and poultry decreased by 0.3%-1%. From a year-on-year perspective, in May, food prices decreased by 0.4%, with the rate of decline widening by 0.2 percentage point from the previous month.

Although the CPI slightly declined year on year in May, the economy remained stable and the effects of policies to boost consumption have emerged. The positive changes in the CPI are accumulating.

First, the core CPI growth rate has expanded. Since food and energy prices are significantly affected by short-term factors, the core CPI, which excludes food and energy, better reflects the trend of price changes. In May, the core CPI increased by 0.6% year on year, 0.1 percentage point higher than the previous month, reflecting the gradually greater role of domestic demand in driving prices.

Second, prices of industrial consumer goods have increased at a quicker pace. The trade-in policy has been strengthened and expanded, driving up the prices of related industrial consumer goods. In May, the prices of industrial consumer goods excluding energy rose by 0.6% year on year, an increase of 0.2 percentage point from the previous month. The prices or cultural and entertainment durable consumer goods, such as cellphones and computers, rose by 1.8%.

Third, the rise in service prices has widened. Holiday demand and the expansion of residents' requirements for education, culture and living have driven up service prices. In May, service prices went up by 0.5% year on year, 0.2 percentage point higher than the previous month. Specifically, prices for flight tickets and tourism increased by 1.2% and 0.9%, respectively, and the prices of family services and education services increased by 1.7% and 1.2%, respectively.

The current price situation should be viewed from a comprehensive and nuanced perspective. On one hand, we're seeing the positive effects of policies aimed at boosting domestic demand and promoting a reasonable recovery in the overall price level. The core CPI growth has steadily expanded and positive changes in prices have continuously accumulated. However, we also need to acknowledge that overall prices are at a low level, affecting the corporate profitability and the employment and income increases of residents. In the next stage, we will further coordinate expanding domestic demand with deepening supply-side structural reforms, leverage the combined effects of macro policies, regulate market pricing, promote improve the supply and demand relationships, and foster a reasonable recovery in prices. Thank you.