China: Inflation recedes in June
Consumer prices dropped 0.40% in June over the previous month, a sharper drop than the 0.20% drop recorded in May and driven by lower food prices. June’s result marked the sharpest fall in prices since March.
Inflation edged down to 1.1% in June, from May’s 1.3%. Accordingly, the trend pointed down mildly, with annual average inflation coming in at 0.9% in June (May: 1.0%). Meanwhile, producer price inflation edged down to 8.8% in June, from May’s 9.0%, likely supported by a more favorable base effect and recent steps taken by the government to tame price pressures, including a crackdown on speculation and a release of state stockpiles.
Looking ahead, producer price inflation should stay elevated in H2 notwithstanding government measures, amid resurgent global demand and supply constraints. Regarding consumer prices, panelists see a pickup later this year, although improved pork supply due to farmers rebuilding their hog herds in the wake of African swine fever will keep a lid on the increase.
On producer prices, Ho Woei Chen, economist at United Overseas Bank, commented:
“Domestic measures to contain commodity price gains may have helped to stabilize the PPI but elevated global crude prices and higher freight costs as a pickup in seasonal demand towards year-end exacerbates the tight supply chain […] may further contribute to the price pressure. The PPI inflation is likely to stay elevated in H2 21 and we maintain our full-year forecast of 7.5%.”