China Consumer Prices Rise Less Than Forecast; PPI Falls

(RTTNews) - Bolstering the case for monetary policy easing, China's consumer prices increased less than expected in June and producer prices continued to decline, official data revealed on Wednesday.

The consumer price index logged an annual increase of 0.2 percent in June, following a 0.3 percent gain in May, the National Bureau of Statistics reported. Prices were forecast to climb 0.4 percent.

On a monthly basis, consumer prices dropped 0.2 percent after easing 0.1 percent in May.

Core inflation that excludes prices of food and energy rose 0.6 percent annually, the same rate as seen in May.

Food prices declined 2.1 percent from a year ago. Within food inflation, pork prices advanced 18.1 percent in June, while beef prices fell 13.4 percent.

Another report from the NBS showed that producer prices posted an annual fall of 0.8 percent in June, as expected, but slower than the 1.4 percent fall in May.

Capital Economics' economist Gabriel Ng said the slowdown in annual producer price deflation was entirely due to base effects.

The economist expects a slight uptick in consumer price inflation over the coming months but worsening overcapacity will keep it very low by global standards.

ING economist Lynn Song observed that soft inflation and weak credit data are presenting a compelling case for further monetary policy easing from the central bank in the coming months.

"While we believe the PBOC has likely held back on cuts in order to avoid adding to RMB depreciation pressure, we expect to see 1-2 rate cuts in the second half of the year, with a stronger case for cuts if the Fed begins its rate cut cycle," said Lynn.