China Inflation Turns Positive; PPI Continues To Fall

(RTTNews) - China's consumer prices rose for the first time in five months in June but it remained weak and producer prices marked its 33rd straight month of decline, adding pressure on policymakers to introduce more measures to boost demand and support economy.

The consumer price index logged an unexpected annual growth of 0.1 percent in June, offsetting a fall of 0.1 percent in May, the National Bureau of Statistics reported Wednesday. Prices were expected to fall again by 0.1 percent.

With a marginal increase in June, headline inflation ended a four-month streak of deflation, while Beijing aims to achieve inflation at "around 2 percent" for 2025. Food prices dropped 0.3 percent from a year ago, while non-food prices edged up 0.1 percent in June.

Core inflation that excludes prices of food and fuel rose to 0.7 percent in June. On a monthly basis, consumer prices dropped 0.1 percent, confounding expectations for a flat change.

Another data from the statistical office showed that producer prices plunged 3.6 percent from a year ago in June, worse than May's 3.3 percent decrease. Economists were forecasting a slower decline of 3.2 percent. PPI inflation hit the weakest since July 2023.

ING economist Lynn Song said deflation remains a concern. The economist noted that reasons for deflation was a contractionary cycle featuring heavy price competition as well as pay freezes and pay cuts.

Song said increased focus on stopping unhealthy price competition may take time to translate in inflation data.

With activity data softening slightly in recent months, but not signaling a sense of immediate urgency, the next rate cut is likely to come in the fourth quarter, the economist added.