By Gina Lee

Investing.com – Inflation data released by China’s National Bureau of Statistics suggested that world’s second largest economy still has a way to go in its recovery from the effects of COVID-19.

The Producer Price Index fell by 3.7% in May year-on-year, with analyst forecasts prepared by Investing.com predicting a 3.3% drop. The PPI fell by 3.1% in April.

Meanwhile, the Consumer Price Index fell 2.4% year-on-year, while falling 0.8% month-on-month, during the same month.

“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 (OTC:CRZBY), told Bloomberg.

Gains in pork prices, a key staple in the CPI basket, was down to around 82% in contrast to the 97% increase in April. Chinese hog herds were wiped out by an outbreak of African Swine Fever, but a record 400,000 metric tons of pork was imported in April.

Some investors suggested that the disappointing data showed that demand continued to be weak and that domestic recovery was not as far along as hoped for.

“China’s output gap remains negative. It will take a longer while for the PPI to return positive,” Raymond Yeung, chief China economist at Australia&New Zealand Banking Group, told Bloomberg. “To support the recovery, the PBOC will continue to guide the lending interest rate slightly lower.”

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