Chinese deflation reaches highest level in 22 months

In the People's Republic of China, rates of deflation surged to their highest levels in 22 months.

A night market in Wuhan, China.

According to newfound data from the Chinese National Bureau of Labor Statistics, the producer price index for China fell 3.3% in the month of May to the year prior, deeper from the 2.7% decline experienced in April. The consumer price index fell 0.1% in May from a year earlier. Retail sales slowed significantly, and the progression of core inflation (not including oil and grocery prices) rose by 0.6% over a year.

A graphic showing the producer price index for manufactured goods, not including May of 2025. Inflation reached its lowest levels in almost two years.

These numbers confirm what many economic analysts have anticipated to happen to China due to recent events, particularly the housing crisis. Due to the over-construction of real estate without much real demand, the prices of homes fell dramatically, thus starting a cycle of deflation. Companies, particularly in real estate, suffered tremendously as sales slipped. While the Xi regime has attempted to remedy this situation by cutting mortgage rates, limiting real estate as a means of building up value rather than for living space, and by promoting state-sponsored affordable housing programs, but even despite all of these efforts the crisis is continuing and getting worse. Now, entire cities across China are facing mass vacancies and company failures, contributing to the low producer price index.

A more recent concern for the Chinese economy has been the U.S.-China trade war. Although it did allow inflation to recover, it exacerbated the real estate crisis by leading to even more failures and slowing demand. The triple-digit rates which President Trump has threatened, as well as a similar rate as a retaliatory tariff by President Xi, only made business worse.

Although China carries the highest GDP nominal purchasing power parity and the second highest GDP nominal, and it is spearheading global efforts in infrastructure development through Belt-and-Road, its domestic struggles have gone under the radar, and it is necessary for the Chinese authority to combat these issues before a global chain reaction could affect other countries.