Market News

(Bloomberg) -- China’s consumer deflation extended into a fourth month, as price wars intensified while a spending boost during two national holidays failed to offset the drag from weak domestic demand.

The consumer-price index fell 0.1% in May from a year earlier, the National Bureau of Statistics said Monday. Factory deflation persisted into a 32nd month, with producer prices falling the most in nearly two years.

The threat of entrenched deflation in China will likely linger for months to come as consumers hunker down after a prolonged property slump and companies become mired in price wars. The risk is compounded by trade frictions with the US, even as the two countries agreed to continue talks after a call last week between Donald Trump and Xi Jinping.

Asian stocks opened higher with trade negotiations set to resume in London on Monday, while positive jobs data in the US eased recession fears. The benchmark CSI 300 Index of onshore stocks rose as much as 0.5%.

The talks offer a glimmer of hope that the world’s two largest economies can defuse tensions and potentially lower tariffs that reduce US demand for Chinese goods and potentially worsen China’s industrial overcapacity and intensify price wars.

In the latest example of cutthroat competition, carmaker BYD Co. slashed prices by as much as 34% on almost a dozen of its electric and plug-in hybrid models, stoking concerns of another wave of discounting in the EV market.

Holidays at the beginning and end of May brought temporary respite, however, when demand for services heated up during a popular time for travel and visiting family.

What Bloomberg Economics Says...

“There’s no end in sight for deflationary pressures in China yet... Policymakers are delivering on budget plans but resources don’t appear to be going where they could make a difference for consumers. Price wars in goods and services aren’t helping, either.”

— Eric Zhu, economist