China’s deflation risks rose in June amid weak demand, with consumer inflation flat and factory-gate prices dipping further

China’s consumer price index (CPI) remained flat in June, year on year, while the producer price index (PPI) fell by 5.4 per cent last month

The ‘weaker than expected’ data could point to weaker performance in second-quarter economic data, analysts said

3-MIN READ3-MIN

China’s producer price index (PPI) reflects the prices that factories charge wholesalers for products. Photo: AP

Published: 9:38am, 10 Jul 2023Updated: 12:25pm, 9 Aug 2024

Deflation risks in China heightened in June amid weak demand, with consumer prices remaining flat and a factory-gate price fall deepening further, underlining a slowing economic recovery.

The consumer price index (CPI) was unchanged from a year earlier, down from 0.2 per cent growth in May, according to the National Bureau of Statistics (NBS). It marked the lowest reading since February 2021.

Meanwhile, dragged down by a sharp fall in raw material prices, the producer price index (PPI) – which reflects the prices that factories charge wholesalers for products – fell by 5.4 per cent in June from the previous year. It marked the steepest fall since December 2015.

“The data is weaker than expected. Further evidence that domestic demand is weak,” said Larry Hu, chief China economist at Macquarie Group.

A weak real estate sector and low market confidence were the main reasons for the low CPI figure, Hu added.

This could mean a weaker performance in the second-quarter economic data, with gross domestic product growth likely to be 7 per cent or lower compared to last year, when the figure stood at just 0.4 per cent, according to Hu.

“The predicted 7 per cent growth is actually less than 4 per cent when put on a two-year basis, which is a very weak figure,” Hu added.