"China again has space for a forceful response if necessary," Lipton said.
Communist leaders spent two years tightening lending and investment curbs to cool an overheated economy after its rebound from the 2008 crisis. Inflation climbed to a three-year peak of 6.5 percent last July before declining.
Beijing started to reverse course late last year after a plunge in global demand battered exporters. Communist leaders have moved cautiously after their huge stimulus in response to the 2008 crisis fueled inflation and a wasteful building boom.
The May data still showed signs of price pressures, with the cost of fresh vegetables rising 31.2 percent over a year ago.
May wholesale prices fell for a second month, declining 1.4 percent compared with the same month last year. That suggested factories and other suppliers have a glut of goods and must cut prices charged to retailers.
"China's producers are seeing sharp deflation, pointing to a worrying lack of final demand," said Thornton. "Both should act as a spur for the government to move more aggressively."