The consumer price index (CPI) rose 2.3 percent in June from a year
earlier, missing the market forecast of 2.4 percent in a Reuters
poll and down from 2.5 percent in May, the National Bureau of
Statistics said on Wednesday.
The producer price index (PPI) dropped 1.1 percent in its 28th
straight month of decline, versus a market consensus for a fall of 1
percent, signalling that demand in the domestic economy remained
lukewarm, despite some recent signs of stabilisation.
"The weak inflation data leaves more scope for Beijing to step up
use of targeted measures and even opens the opportunity window for
blanket easing policy, such as an interest rate cut, to support
economic growth," said Wang Jin, an analyst at Guotai Junan
Securities in Shanghai.
Most economists believe Beijing will roll out fresh stimulus
measures in coming months to ensure 2015 economic growth meets its
target of 7.5 percent, but they are divided over whether it will
stick to small-scale measures used so far or take more aggressive
steps such as interest rate cuts or a nation-wide reduction in the
amount of reserves banks must hold.
Policymakers are reluctant to announce a massive stimulus programme
like the one adopted during the 2008-09 global financial crisis,
which fueled inflationary pressures and left local governments
saddled with mountains of debt.
"Subdued inflation means monetary policy will have plenty of room to
ease further over the coming months," Julia R Wang, an economist at
HSBC said in a note to clients.
"We think the central bank will likely continue to do so in a
targeted manner, provided that economic activity continues to show
Ting Lu, an economist at Bank of America-Merrill Lynch, also
expected Beijing to take further action.
"We expect Beijing to continue rolling out a slew of small-scale
measures to deliver the around 7.5 percent annual growth target," he
said in a note to clients.
The weaker June inflation reading was mainly due to lower pork and
The CPI fell 0.1 percent in June from May, versus a forecast of no
change in monthly prices.
In the first half of this year, average consumer inflation was 2.3
percent, way below the official ceiling of 3.5 percent set by the
government at the start of the year.
FURTHER EASING NEEDED
Data for May and more recent factory and service sector activity
surveys have suggested that China's economy was steadying after a
weak start to the year.
But analysts said easing consumer inflation and persistent
factory-gate deflation showed the recovery remained patchy.
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A cooling property market poses an additional risk, and conditions
there could determine just how much more may be needed on the
stimulus front to stabilise the broader economy.
With inflation clearly not a threat for now, the government and
central bank have the scope to loosen policies further to bolster
"Further monetary policy easing across the board will still be
needed to help lift confidence in China's economy," said ANZ
economists in a research note to clients.
ANZ believes Beijing will reduce reserve requirement ratios (RRR)
for all of the country's banks in the third quarter. So far, it has
relaxed the requirement only for banks which are significant lenders
to small companies and the farming sector.
Chinese Premier Li Keqiang said earlier this week that economic
growth quickened in the second quarter from the previous three
months. But he added the economy still faces downward pressure and
further modest stimulus measures will be needed to boost activity.
The latest Reuters poll showed China's economy probably steadied in
the second quarter, with annual growth holding firm at 7.4 percent,
as recent government policy measures kick in.
Beijing has stepped up policy support in recent months to give a
lift to economic growth, which dipped to a 18-month low in the first
Such measures include targeted reserve requirement cuts for some
banks, quicker fiscal disbursements and hastening construction of
railways and public housing projects.
The central bank said on Monday that it would use a mix of various
monetary tools to keep overall liquidity at an appropriate level to
support the economy.
(Editing by Kim Coghill)
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