Food prices lead China's June inflation up

China's food inflation rebounded to 1.9% y/y in June from 1.6%, led by a large increase in pork prices (+7.0% y/y versus +5.3% in May). Meanwhile, core inflation, which excludes energy and food, rose to 1.7% y/y from 1.6%. 

Therefore, CPI inflation edged up to 1.4% y/y in June from 1.2% in May, was expected, says Barclays.

The tax rate hike in April on tobacco products has had a prolonged positive effect on both headline and core inflation (Figure 4), and CPI inflation would be c.0.1pp lower based on constant tax rates, estimates Barclays.

According to Barclays, "We believe monetary easing will continue, in order to support the still-subdued inflation outlook and weak market sentiment in China. The recent selloff in Chinese equities has spilled over to other markets, and has led to falling commodity prices and a deterioration in PPI inflation. We also look for one to two 50bp RRR cuts in H2 15, depending on liquidity conditions."