The housing market deteriorated further in May. FAI dropped to a 17-month low of 9.6 percent year-on-year, from 17.5 percent in the first four months of the year. Residential floor space starts, a leading indicator of investment, contracted for the fourth consecutive month, by 12 percent year-on-year. Floor space sales fell by 10.8 percent year-on-year. Financing for developers is getting tougher. Mortgage loans increased 7 percent year-on-year in May, after contracting 11.4 percent in April and 5.1 percent in March. This is a tentative sign that the People's Bank of China's request that commercial banks support first-home buyers is having some effect.

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Growth in outstanding total social financing (TSF) also continued to moderate, to 15.3 percent year-on-year in real terms in May from 16 percent in April. Given high leverage levels in the economy, slower credit growth brings more pain.

Consumption also appears to be slowing. Retail sales growth slowed to 10.7 percent year-on-year in May in real terms.

Food inflation is bottoming out, slowly

CPI inflation rebounded to 2.5 percent year-on-year in May from 1.8 percent in April. As always, food was the key driver; food prices rose 4.1 percent year-on-year versus 2.3 percent in April, contributing 80 percent of CPI growth. Domestic food inflation and global agricultural prices (measured by the S&P GSCI agricultural index) are closely correlated. The rebound in global food prices indicates that domestic food inflation should soon start rising, steadily and slowly. Non-food CPI inflation is stable, at 1.7 percent year-on-year, and should stay close to this level in the coming months. We maintain our 2014 CPI inflation forecast at 2.3 percent.

The decline in the producer price index (PPI) slowed in May to 1.4 percent year-on-year from 2.0 percent in April. On a month-on-month, seasonally adjusted (SA) basis, the PPI was flat in May, after having fallen for four months.

The article is coauthored by Standard Chartered economists Wei Li, Stephen Green and Lan Shen. The views do not necessarily reflect those of China Daily.