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China factory gate deflation deepens in May, consumer inflation picks up

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BEIJING (Reuters) – China’s factory gate prices fell faster than expected in May, as faltering demand weighed on manufacturing, impeding the fragile economic recovery, while consumer inflation missed expectations.

The producer price index (PPI) for May fell for an eighth consecutive month, down 4.6%, the National Bureau of Statistics (NBS) said. Economists in a Reuters poll had predicted a 4.3% fall.

The consumer price index (CPI) rose 0.2% year-on-year after a 0.1% rise in the previous month, missing a forecast for a 0.3% increase.

China’s economy grew faster than expected in the first quarter, but recent data showed factory activity contracted and imports fell in May.

Some economists expect the People’s Bank of China (PBOC) to cut rates or release more liquidity into the financial system. The bank cut lenders’ reserve requirements ratio in March.

China’s biggest banks on Thursday said they had lowered interest rates on deposits, providing some relief for the financial sector and wider economy by easing pressure on profit margins and reducing lending costs.

Analysts have been downgrading their forecasts for economic growth for the year amid continued signs of slowing. The government has set a modest GDP growth target of around 5% for this year, after badly missing the 2022 goal.

(Reporting by Joe Cash; Editing by Sam Holmes)

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