Deflationary pressures loom large in June price data

Consumer prices eked out modest growth in June – but deflationary pressures persist.

Per data released by the stats bureau (NBS) on Wednesday:

• The consumer price index (CPI) grew 0.1% y/y, reversing May’s 0.1% decline
• The producer price index (PPI) fell 3.6%, widening from May’s 3.3% drop

Falling food prices were the main drag on June’s weak CPI growth.

• Pork prices tumbled 8.5% y/y, while overall food prices declined 0.3% y/y.

Core CPI – which strips out food and energy prices – grew by 0.7% y/y, edging up from 0.6% in May.

Still, on a month-to-month basis, deflationary pressures remain:

• On a seasonally adjusted basis, consumer prices fell 0.1% m/m in June.

Meanwhile, factory gate prices have fallen for 33 consecutive months.

Get smart: With both CPI and PPI still weak, it’s almost certain that the Q2 GDP deflator – due later this month – will turn out negative.

• That would mark the eighth straight quarter in which nominal growth has lagged real growth – underscoring the depth and persistence of China’s deflationary pressures.

What we’re watching for: Officials are growing increasingly concerned about destructive price wars across key industrial sectors – including in solar, autos, and batteries.

• If Beijing succeeds in curbing these unsustainable price cuts, consumer price growth will pick up slightly in the coming months.