People visit the 133rd session of China Import and Export Fair, also known as Canton Fair, in Guangzhou, south China's Guangdong Province, April 15, 2023. [Photo/Xinhua]

China's consumer inflation edged up marginally while its factory-gate prices dropped further in May amid weak demand, suggesting more stimulus policies may be needed to boost domestic demand and broaden the economic recovery, analysts said on Friday.

Despite taking a cautious view on both consumer spending and external demand during the rest of the year, they expect that China's economy will expand notably at a faster pace in the second quarter given the continued recovery trend and a low comparison base in the previous year. And the country will likely meet its annual growth target of around 5 percent for 2023, they added.

Their comments came as China's consumer price index, a main gauge of inflation, climbed 0.2 percent from a year earlier in May after the 0.1 percent gain in April, data from the National Bureau of Statistics showed on Friday.

Yi Gang, governor of the People's Bank of China, the nation's central bank, said China is expected to achieve a relatively high GDP growth rate in the second quarter given the base effects, and the country has the confidence, capabilities and conditions to meet its preset annual growth target for 2023.

He told a symposium held in Shanghai on Wednesday with representatives from enterprises and financial institutions that China's consumer inflation will likely rise gradually in the second half of this year, with the CPI likely climbing above 1 percent year-on-year by December, according to a statement published on the central bank's official website on Friday.

Dong Lijuan, an NBS statistician, said May's CPI picked up marginally with the gradual recovery in consumer demand, while the fall in factory-gate prices was affected by declining international commodity prices, weak demand for industrial products at both home and abroad, as well as a high comparison base in the previous year.

The producer price index, which gauges factory-gate prices, was down 4.6 percent from a year earlier in May, compared with the 3.6 percent annual contraction seen in April, the NBS said.

Looking ahead, given the stabilizing food prices and a potential modest rebound in fuel prices, but a highly elevated youth unemployment rate and continued disinflationary pressures in some core goods, Lu Ting, chief China economist at Nomura, said his team expects CPI to inch up only marginally to 0.3 percent year-on-year in June.

Meanwhile, Lu said PPI is expected to dip 4.8 percent year-on-year in June, as global commodity prices remain generally soft.

"Overall, today's inflation readings lend further support to our call for the PBOC to deliver a 10 basis points policy rate cut first to the medium-term lending facility rate next week and then to the loan prime rate, which we have been expecting since mid-May," he said.

Despite the challenges and pressures ahead, Zhou Maohua, an analyst at China Everbright Bank, said that China's economy will likely expand above 5 percent this year with the continued recovery trend and the strong policy support for spurring consumption and expanding domestic demand.

Considering the steady recovery in domestic demand and sufficient market supply of daily necessities, Ye Yindan, a researcher at the Bank of China Research Institute, said China's inflation is expected to remain mild and controllable this year, with the CPI rising around 1.5 percent in 2023.

Looking forward, Ye said China's economy will likely expand notably in the second quarter, and expected to see a 6 percent GDP growth rate in 2023.

Noting that the foundation for China's economic recovery is not yet solid, Ye said more monetary and fiscal stimulus will be needed to stabilize the overall economy.

More efforts should also be made to boost private investment and investors' confidence, support foreign trade, spur consumption and stabilize the property sector, Ye said.

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