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China’s economy teetered on the brink of deflation in June, adding to calls for Beijing to launch a stronger stimulus package to sustain the country’s post-Covid recovery.
The consumer price index was flat year-on-year and decreased 0.2 percent compared to the previous month, while factory-gate prices fell at the fastest pace since 2016 as demand for both consumer and manufactured goods weakened. product softened.
Analysts expected the figures to lead China’s central bank, the People’s Bank of China, to cut interest rates again, adding to a round of cuts last month that many believed were necessary. that Beijing will increase its fiscal stimulus policies.
“The ultra-low inflation reading lends support to our view that the PBoC is likely to implement two more rounds of policy rate cuts,” Nomura economists wrote in a research note.
China has targeted gross domestic product growth of 5 percent this year as the economy emerges from draconian Covid-19 controls, but the recovery has proven weak, with property prices and exports falling.
Consumption is still growing, but there are concerns the government needs to do more to sustain the recovery as global economic growth slows, reducing demand for China’s exports.
The weakening economy comes as Beijing tries to cool tensions with the US, which many blame for a lack of confidence among Chinese investors after a series of tit-for-tat sanctions.
US Treasury Secretary Janet Yellen during a visit to Beijing over the weekend sought to reassure her hosts, including China’s number two official, Premier Li Qiang, that the US is not seeking the full economic decoupling.
The fall in CPI missed analysts’ expectations in a Reuters poll of a 0.2 percent rise.
The producer price index fell 5.4 percent compared to the same period a year ago, accelerating from a drop of 4.6 percent in May and faster than the 5 percent fall forecast by analysts polled by Reuters.
Analysts at Goldman Sachs said the decline in commodity prices was partly due to weaker commodity prices and continued price declines due to the mid-year “618” online shopping festival in China.
Food inflation rose in June due to higher vegetable prices, rising 10.8 percent year-on-year compared to a 1.7 percent decline in May.
But pork prices were lower due to weak demand, falling 7.2 percent year-on-year in June.
The weakening economic performance comes as Chinese economists are urging the government to shift from the traditional form of stimulus – investing in big-ticket infrastructure projects – to targeting consumers.
“It will be more directly corresponding to our actual economic obstacles and deficiencies,” said Cai Fang, a senior economist from the state-run Chinese Academy of Social Sciences, according to a transcript of a business forum published by the Chinese news website Caijing.
China’s onshore yuan opened at Rmb7.2256 to the dollar and Rmb7.2339 at noon, slightly weaker than the previous session’s close, Reuters reported.
Additional reporting by Sun Yu in Beijing