SHANGHAI: Consumer confidence in China held steady in May, suggesting improved prospects for retail sales, but concerns lingered about a further decline in inflation, the first private consumer confidence survey from a foreign bank has revealed.

According to the ANZ-Roy Morgan China Consumer Confidence Index, a joint study from the Australia and New Zealand Banking Group and Roy Morgan Research, confidence remained stable at 152.5 in May, compared with 152.6 in April.

ANZ said this could “foretell a possible pick up in China's retail sales”, although it added that a fall in inflation expectations to 4%, compared with 4.5% in April and 5.2% in January, suggested domestic demand would remain “lukewarm” and that retail sales in May will not see a significant boost.

Confidence also varied in different cities, the report found, with residents of Shanghai and Guangzhou remaining “upbeat” while sentiment in Beijing continued to decline. Small and medium cities reported an improvement, ANZ added.

Chinese consumers were marginally less optimistic about their financial prospects and the overall economic condition than they were last month.

Just over 57% reported they were in a better financial situation compared with a year ago (versus 59.5% in April) while almost 67% thought economic conditions would improve next year (versus 69.6% in April).

There was also a modest decline in the number agreeing that now is a good time to buy major items – 41.7% agreed with this statement in May compared with 46.6% in April – but 70% believed economic conditions will be good in the next five years, up from 69% in April.

Separately, the report said that consumption, boosted by structural reforms, has “huge room” to grow at a fast pace.

It expected consumption growth to soon outstrip GDP growth so that, by 2020, China's private consumption will represent 44% of its GDP and will be about 70% of the size of the US consumer market, compared with its current rate of 40%.

Much of this consumption will be fuelled by China's growing middle class, the report predicted, and it expected 100m more middle-income households will enter the market over the next few years with their spending making up two-thirds of total urban consumption, compared with just one-third in 2012.

Warc's Consensus Forecast, which publishes figures based on a weighted average of predictions from a variety of sources, found China's total advertising expenditure, driven by online spending, is expected to rise 9.7% in 2013 and a further 11.2% in 2014.

Data sourced from ANZ-Roy Morgan; additional content by Warc staff