China June CPI misses forecasts, disinflation a possible concern

Price pressures in Asia's largest economy steadied last month but economists appeared to be in broad agreement that inflation was set to slow further.

Consumer prices in China rose at a 1.5% year-on-year pace in June, according to the National Bureau of Statistics, the same as in May.

That was less than the 1.6% gain that economists had forecast.

Versus May, the country's CPI slipped by 0.2% month-on-month.

However, 'core' prices, those which exclude the more volatile food and energy components picked up to reach a year-on-year pace of 2.2%, versus 2.1% in the month before.

Even so, Julian Evans-Pritchard at Capital Economics told clients he expected prices to continue slipping lower.

"[...] with slowing credit growth likely to weigh on economic activity in coming quarters we think that, volatility in food prices aside, inflation will start falling again before long. This will disappoint those hopping for a sustained period of reflation that could help to erode corporate debt burdens," he said.

Meanwhile, separate data released on Monday showed factory gate inflation was also unchanged in June at 5.5% year-on-year as rising steel prices offset lower out prices among oil refiners.

In comparison to May, producer prices declined by 0.3% on the month.

Li-Gang Liu and Xiaowen Jin at Citi were in broad agreement with Evans-Pritchard, except as regarded the very short-term outlook for CPI.

Their forecasts called for producer prices to slow further from a high base, reaching a 1.9% year-on-year clip in the second half of 2017.

CPI on the other hand was seen accelerating to a 2.3% pace in the last three months of the year as severe floods in South China stoked food price inflation.

Nonetheless, the two economists at Citi added: "diminishing PPI inflation suggests reflation won't be a risk for China this year, and disinflation could become a concern next year.

"Today's inflation figures also suggest that there is limited room for PBoC to tolerate further rate rises in China."