BEIJING, June 9 Reuters China39;s factory gate prices fell at the fastest pace in seven years in May and quicker than forecasts, as faltering demand weighed on a slowing manufacturing sector and cast a cloud over the fragile economic recovery.

As rising interests rates and inflation squeeze demand in the United States and Europe, China is in contrast battling a sharp decline in prices with factories receiving less for their products from key overseas markets.

The producer price index PPI for May fell for an eighth consecutive month, down 4.6, the National Bureau of Statistics NBS said on Friday. That was the fastest decline since February 2016 and bigger than the 4.3 fall in a Reuters poll.

The risk of deflation is still weighing on the economy, said Zhiwei Zhang, chief economist at Pinpoint Asset Management, in a note. Recent economic indicators send consistent signals that the economy is cooling, he added.

China39;s economy grew faster than expected in the first quarter, but recent indicators show demand is rapidly weakening with exports, imports and factory activity falling in May.

The consumer price index CPI rose 0.2 yearonyear, speeding up from a 0.1 rise in April but, missing a forecast for a 0.3 increase.

Food price inflation, a key driver of CPI, slowed to 1.0 yearonyear from 2.4 in the previous month. On a monthonmonth basis, food prices fell 0.7.

The Australia dollar eased 0.2 to 0.6704, tracking a fall in the Chinese currency yuan after the inflation…