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Mixed messages in China's June inflation data

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2024-07-10

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The June inflation data from China presented mixed messages on Wednesday, as economic activity and the government’s ongoing support measures failed to gain real traction with consumers and depressed sectors of the economy.

While consumer prices remained weak and eased last month, the deflation that has gripped the large production sector for more than 18 months showed signs of easing again.

However, this wasn't the full story for producer prices. Although deflation eased to an annual rate of 0.8% in June, down from 1.4% in May and over 2% earlier in the year, June still saw a fall of 0.2%, contrary to forecasts, reversing a similar-sized and unexpected rise in May. The 0.8% fall marked the 21st consecutive month of contraction in factory-gate prices, but it was the softest decrease since January 2023, seemingly due to government support measures.

China’s National Bureau of Statistics (NBS) reported that on a monthly basis, producer prices were down 0.2%, reversing from a 0.2% gain in May, which had been the first increase in eight months. Over the first half of the year, producer prices shrank by 2.1%.

The NBS also noted that while consumer prices rose 0.2% in June from a year earlier, this was down from the 0.3% rise in May and lower than the 0.4% rise predicted by economists. It was the fifth consecutive month of consumer inflation but the lowest since March. The Consumer Price Index (CPI) edged down 0.2% month-on-month, compared to a 0.1% drop in May and a forecasted fall of 0.1%.

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