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China June Inflation Eases to 1.9%

China June Inflation Eases to 1.9%China June Inflation Eases to 1.9%

China’s June consumer inflation grew at its slowest pace since January as increases in food prices eased, while producer prices extended their decline, reinforcing economists’ views that more government stimulus steps will be needed to support the economy.

The consumer price index rose 1.9% in June from a year earlier, compared with a 2% increase in May, the National Bureau of Statistics said on Sunday. Analysts had expected a 1.8% gain, a Reuters poll showed.

Consumer inflation has remained low compared with the official target of around 3% for this year, indicating persistently weak demand in the world’s second-largest economy.

Food prices were up 4.6% in June, compared with a 5.9% gain in the previous month. Prices of meat rose 30.1%, compared with a 33.6% increase in May.

But recent flooding in China “is likely to push vegetable and fruit prices higher in the coming months,” ANZ economists Raymond Yeung and Louis Lam wrote in a research note.

Non-food prices inched up 1.2% in June versus May’s 1.1% gain.

“In our view, while China reiterates the importance of supply-side reform due to debt and overcapacity concerns, the authorities still need to stimulate demand in order to achieve its growth target,” Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore, said in a note.

The People’s Bank of China last cut interest rates on Oct. 23, the seventh time since late 2014, as the government took steps to counter slowing economic growth.

China’s leaders have set an economic growth target of 6.5% to 7% for 2016. The economy expanded 6.9% last year, its slowest pace in a quarter of a century.

Producer Prices

A top government-backed think tank forecast in late June that consumer prices will likely rise 2% for the year, while the long decline in producer prices will ease.

“Of course, further policy easing is still on the cards, and we hold our view that the PBOC will cut both interest rates and reserve rate requirement this month,” Zhou said.

In June, the producer price index dropped 2.6% from a year earlier. Analysts had expected PPI to fall 2.5%.

The decline extended a falling streak to 51 consecutive months, though it continued to moderate, suggesting strains on companies’ profits may be easing. The PPI eased 2.8% in May.

Producer prices for mining fell 8.2% in June from a year earlier, while raw materials dropped 6.1%.

China is due to release its second-quarter gross domestic product data on July 15, along with figures for June’s industrial output, investment and retail sales.

Financialtribune.com