Consumer prices ease in China, economic stimulus needed to boost prices

China’s consumer price inflation fell to near six-month low in June, while producer prices extended their decline, signaling caution that more economic and financial stimuli by the government are required to speed up the economy and help boost price inflation.

The consumer price index (CPI) rose 1.9 percent in June from a year earlier, compared with a 2.0 percent increase in May, data released by the National Bureau of Statistics showed Sunday. According to a Reuters poll of analysts, inflation was expected to witness a 1.8 percent gain.

On the other hand, food prices surged 4.6 percent m/m in June, compared to 5.9 percent m/m in May. Also, prices of China's staple meat pork rose 30.1 percent, compared with a 33.6 percent increase in May.

In addition, the producer price index (PPI) dropped 2.6 percent from a year earlier, extending decline for 51 consecutive months, though it has moderated, suggesting that the strains on companies' profits may be evading. Prices had fallen 2.8 percent in May.

Meanwhile, producer prices for mining fell 8.2 percent in June from a year earlier, while raw materials dropped 6.1 percent. China’s second-quarter gross domestic product (GDP) data, due to be released on July 15, is expected to show a decline on a y/y basis, given the underlying worries of a potential economic fallout from Britain’s exit from the European Union in a referendum held on June 23.

However, the China Academy of Social Sciences (CASS) predicted that the economy will grow about 6.6 percent in 2016, decelerating from last year. Further, a top government-backed think tank expects consumer prices to rise 2 percent y/y, while anticipating an easing over the long decline in producer prices.