Chinese consumer prices plummet as economy struggles

In June 2025, China continues to face economic challenges as recent reports indicate a persistent trend of falling consumer prices. Data released by the National Bureau of Statistics (NBS) revealed that in May, consumer prices dropped 0.1 percent year on year, marking the fourth consecutive month of decline. This situation arises amidst sluggish domestic consumption and tension due to global trade issues, including the ongoing trade talks with the United States. The Chinese economy has faced difficulties in reviving spending since the pandemic, which threatens its official growth targets and complicates efforts to shield it from potential tariffs imposed by the US. The trade discussions are timely, scheduled to take place in London, bringing together representatives from both China and the US. These talks come after a phone call between US President Donald Trump and Chinese President Xi Jinping and are significant as they are the second formal negotiations following Trump's announcement of trade actions in April. The first round of negotiations earlier in May did not result in a comprehensive agreement and temporarily paused the increases in tariffs. Economists are closely observing these talks for signs of a potential deal that may address the current economic woes. In addition to the fall in the consumer price index, factory gate prices have also been affected, with the producer price index dropping 3.3 percent in May, worsening from the previous month’s 2.7 percent decline. This trend of falling prices adds to deflationary pressures in the economy, where consumer spending is crucial. As deflation occurs, consumers tend to delay purchases in anticipation of even lower prices, creating a vicious cycle of reduced demand, which then forces companies to cut production or lay off workers. Experts are urging that Beijing must harness domestic demand to combat these ongoing deflationary conditions. Zhiwei Zhang, president of Pinpoint Asset Management, highlighted that while exports continue to perform reasonably well, there are warnings that export growth may slow as preparation for tariffs comes to an end. The upcoming trade figures are expected to provide further insights into how exporters are navigating these challenges. With the economic landscape delicate, stakeholders are awaiting clear results from the upcoming negotiations, understanding that the outcomes could significantly impact not only China’s economy but also global economic conditions in light of the intricate supply chains and international trade.