China’s consumer prices rose the least in two years in May and industrial output and retail sales trailed estimates, adding pressure for more stimulus after the first interest-rate cut in three years.

Inflation slowed to 3 percent from a year earlier, the National Bureau of Statistics said, compared with the 3.2 percent median forecast in a Bloomberg News survey. Production increased 9.6 percent, lower than a projected 9.8 percent gain, and retail sales climbed 13.8 percent, the Beijing-based bureau said in separate statements.

The data add to concern global growth is stalling as Greece teeters on the edge of exiting the euro, Spain struggles to restore confidence in its banking system, and U.S. job growth weakens. Premier Wen Jiabao may introduce additional stimulus to protect a full-year growth target of 7.5 percent even as the nation wrestles with bad loan risks from local government debt.

“These data should defeat any remaining complacency that the policy response has been adequate to maintain steady growth,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “More dramatic easing, especially in housing and local government financing vehicles is urgently needed and necessary to avoid a hard landing in the Chinese economy.”

China customs data today may show exports and imports grew last month by less than the government’s 2012 target of 10 percent. Overseas sales increased 7.1 percent from a year earlier while purchases rose 5.5 percent, according to the median estimates in Bloomberg News surveys of economists.

Credit Growth

Shen, who previously worked for the European Central Bank, said he expected at least one more reduction in interest rates and three cuts in banks’ reserve requirements this year.

The People’s Bank of China lowered benchmark lending and deposit rates by 25 basis points effective June 8, taking one- year borrowing costs down to 6.31 percent and the one-year savings rate to 3.25 percent. It also allowed banks more leeway to set their own interest rates.

The reserve ratio has dropped by 150 basis points, or 1.5 percentage point, in three cuts since November to spur credit growth and now stands at 20 percent for the biggest banks.

Chinese stocks fell June 8, capping the biggest weekly slide this year, after the central bank’s rate cut added to concern the nation’s economic slowdown is deepening. U.S. shares rallied, driving the Standard & Poor’s 500 Index to its best weekly gain since December, amid speculation European and American central banks will join China in trying to spur economic growth.

‘Benign’ Outlook

Slowing inflation “is what gave the central bank the confidence to cut interest rates,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong, who accurately forecast the consumer-price reading. “Given the falling producer prices, China’s inflation outlook remains benign and we expect another cut in banks’ reserve requirements in June to boost slowing economic activities.”

Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, forecasts two 25 basis-point reductions in benchmark one-year interest rates in the second half, assuming further weakness in economic data through July and continued “difficulties” in the euro area.

China’s industrial production growth was below 10 percent for a second month in May, yesterday’s data showed, the first time that’s happened in three years. Power output rose at the second-slowest pace in three years excluding distortions caused by the timing of the Lunar New Year holiday.

Appliance Sales

Retail sales, which aren’t adjusted for inflation, rose the least in almost six years, excluding the January and February holiday months. Growth in sales of home appliances slid to 0.5 percent compared with a 15.4 percent gain in May last year, after the government ended incentive programs.

Deliveries of passenger vehicles to dealerships by automakers including Toyota Motor Corp. and Honda Motor Co. rose 22.6 percent last month from a year earlier to 1.28 million units, the China Association of Automobile Manufacturers said in Beijing yesterday. The rebound came after deliveries fell 0.1 percent in May last year as Japanese automakers cut production after Japan’s earthquake.

Fixed-asset investment, excluding rural households and not adjusted for inflation, rose 20.1 percent in the first five months, compared with the median economist estimate for a 20 percent gain. That was the weakest increase for a January-May period since 2001, according to previously released data.

‘Sharp’ Deflation

The producer-price index fell 1.4 percent in May from a year earlier, compared with the median estimate for a 1.1 percent drop. That’s the third straight decrease and the longest stretch of declines since 2009.

“China’s producers are seeing sharp deflation, pointing to a worrying lack of final demand,” said Alistair Thornton, an economist at IHS Global Insight in Beijing. The decline in prices, combined with the “sharp” drop in the prices gauge in May’s purchasing managers’ index, “points to considerable sluggishness in domestic manufacturing activity” and should “act as a spur for the government to move more aggressively,” he said.

Anhui Conch Cement Co., the nation’s biggest cement producer, warned June 7 its first-half profit probably fell more than 50 percent as prices of its products “dropped significantly” due to slower growth in fixed-asset investment.

China’s economy expanded 8.1 percent in the first three months from a year earlier, the fifth quarterly deceleration and the slowest pace in almost three years. Growth may slide to 7 percent to 7.5 percent this quarter, Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, wrote in a note yesterday.

“We expect the government to start and speed up more projects on the one hand and to make project financing easier” by cutting reserve requirements and interest rates, approving more corporate bond issuance and lifting lending restrictions, he said.