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China Inflation June 2023

China: Consumer prices flatline in June; producer prices continue to fall

Consumer prices were flat in annual terms in June, below May’s 0.2% rise and undershooting market expectations. June’s figure represented the lowest rate since February 2021. Annual average consumer price inflation ticked down to 1.5% in June (May: 1.7%). Consumer prices fell 0.20% in June over the previous month, matching May’s reading. Lastly, producer prices fell 5.4% on an annual basis in June, which was a steeper drop than May’s 4.6% decrease and also undershot market expectations.

Weak price pressures in June can be attributed to flagging domestic demand, the normalization of domestic and global supply chains, and softer commodities prices compared to the same period last year. Our panelists do see consumer price inflation returning later this year on an expected uptick in world energy prices. However, inflation will be extremely low compared to other major economies, and our panelists have revised down their 2023 average inflation forecasts by 0.6 percentage points since May. Moreover, a fall in consumer prices is possible in Q3 due to the challenging base of comparison.

On the near-term outlook, Nomura analysts said:

“Even taking into account a potential rise in service inflation as a result of the summer holiday season, we expect CPI inflation to slip further to -0.5% y-o-y in July, due partly to a high base. On producer prices, we expect PPI inflation to rebound moderately to -4.5% y-o-y in July, mostly due to a lower base.”

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