China June inflation edges up, producer prices continue to fall

| | Updated on: Jul 09, 2015

China's consumer inflation edged up slightly in June while stubbornly weak producer prices fell again, data that could increase worries about a sluggish Chinese economy which is also smarting from a stock market rout.

China's consumer inflation quickened to 1.4 per cent year-on-year in June, beating market expectations.

Analysts polled by Reuters predicted the index would come in at 1.3 per cent, compared with 1.2 per cent posted for May.

The producer price index cooled to -4.8 per cent in June, the National Bureau of Statistics said on Thursday. This marks its 39th straight month of declines.

The market had expected producer prices to fall 4.5 per cent on an annual basis after a decline of 4.6 per cent the prior month.

Kevin Lai of Daiwa Capital Markets in Hong Kong said that given what's going on in the markets, "there must be pressure on the central bank to ease to counter deflation pressure. There must be a lot of negative wealth effect from the stock market, which is deflationary. That means in the next few months we may see further downward pressure on CPI."

Li Huiyong, economist at Shenyin & Wanguo Securities in Shanghai, said inflation was still at a low level

"The data continues to point out the weak domestic demand in the real economy. Given the stabilising of consumer prices, we think there are still room for the central bank to ease its monetary policy," Li said. "They are more likely to cut the amount of cash that banks must hold as reserves in the coming months."

China's anaemic economy has had a difficult year. A steady stream of policy-loosening steps has not revived activity. Worse, a swooning Chinese stock market that has plunged nearly one-third in the past month, wiping out around $4 trillion so far, has further rattled confidence.

To calm panicky investors, China has in the past week launched a rescue plan for plunging share prices that includes halting initial public offerings and ordering Chinese brokerages and fund managers to buy at least 120 billion yuan ($19.3 billion) of stocks.

But the measures have yet to calm the stock market, which shed 7 per cent on Wednesday.

To support the economy, China's central bank cut its lending rates for the fourth time in seven months in June, and lowered the amount of cash that some banks must keep as reserves.

But the easier supply of credit has not visibly boosted China's real economy as firms that need the money the most, such as small businesses, are still encumbered by prohibitively costly bank loans.

Most analysts believe China could lower rates yet again, alongside further reductions to the reserve requirement ratio to ensure the economy grows by around 7 per cent for the full year, as targeted by the government.

The government is due to release second-quarter gross domestic product data on July 15 and many economists expect growth to dip below 7 per cent, which would be the weakest performance since the global financial crisis.

Published on January 24, 2018

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