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While much of the world has to deal with inflation that does not give up, China sees the specter of deflation ever closer. In June, Chinese producer prices fell at the fastest pace in seven years, while consumer prices teetered on the edge of deflation.
China’s post-pandemic recovery slowed from the strong recovery seen in the first quarter, and demand for industrial and consumer products weakened, raising concerns about the health of the world‘s second-largest economy.
“We believe the deflationary backdrop and sharp growth slowdown reinforce our view that the PBOC has entered a rate-cutting cycle,” Barclays economists said in a research note.
The producer price index (PPI) fell for the ninth straight month in June, down 5.4% from a year earlier, the National Bureau of Statistics (NBS) announced on Monday, the decline steepest since December 2015. This compares with the 4.6% decline the previous month and the -5% expected by economists.
Consumer price inflation unchanged
The consumer price index (CPI) was unchanged year-on-year from a 0.2% increase recorded in May, due to a faster decline in pork prices. This figure fell short of expectations of a 0.2% increase and was the slowest pace since February 2021.