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China’s economy teetered on the brink of deflation in June, fueling calls for Beijing to come up with stronger stimulus measures to sustain China’s faltering post-coronavirus recovery.
The consumer price index was flat year-on-year, down 0.2% month-on-month, but factory prices fell at their fastest pace since 2016 as demand for consumer and industrial goods slowed.
Analysts expect China’s central bank, the People’s Bank of China, to cut interest rates again in response to the numbers, with many saying the government will need to compensate for the series of rate cuts last month with fiscal stimulus. people are thinking
“China is still growing. The question is whether it can hit its target,” said Heron Lim, economist at Moody’s Analytics. “In terms of recovery, we are still on the road to recovery, but the concern is that the momentum is slowing.”
China is targeting 5% gross domestic product (GDP) growth this year as the economy emerges from tough COVID-19 measures, but the recovery has proven fragile due to declining property prices and exports. are doing.
Consumption is still growing, but there are concerns the government will need to take further steps to sustain the recovery as global growth slows and demand for China’s exports declines.
The economic downturn comes as Beijing seeks to defuse tensions with the United States, and many see it as a result of a lack of investor confidence in China following a spate of retaliatory sanctions.
US Treasury Secretary Janet Yellen, who is visiting Beijing over the weekend, reassured her hosts, including China’s number two official, Premier Li Qiang, that the US is not seeking serious economic decoupling. I tried
The CPI fell below the 0.2% rise expected by analysts polled by Reuters.
Producer prices fell 5.4% year-on-year, accelerating from a 4.6% drop in May and beating analyst forecasts of a 5% decline in a Reuters poll.
Analysts at Goldman Sachs said the drop was partly due to falling commodity prices and continued price cuts from China’s 618 mid-year online shopping festival.
Food inflation rose 10.8% year-on-year in June, up from a 1.7% drop in May, partly due to soaring vegetable prices.
However, pork prices were sluggish due to sluggish demand, falling 7.2% year-on-year in June.
“The ultra-low inflation data supports our view that the PBOC is likely to cut its policy rate two more times,” Nomura economists said in a research note.
He added that the central bank could try to release more liquidity into the system by further reducing the reserve requirement ratio, which requires banks to hold a certain amount of cash, as a prudential measure.
Mr. Lim of Moody’s said few expected a “bazooka” type of stimulus. “Despite the fact that the economy is very close to deflation, the People’s Bank of China does not appear to be considering monetary stimulus like the US Federal Reserve and European Central Bank.”
The slowdown in economic performance comes as economists in China urge the government to shift from traditional economic stimulus (investment in expensive infrastructure projects) to stimulus aimed at consumers.
“This could be a more direct response to actual economic blockages and shortcomings,” said Cai Huang, a senior economist at the state-run Chinese Academy of Social Sciences, according to business forum records published by Chinese news site Caijing. There is,” he said.
China’s onshore yuan opened at 7.2256 yuan to the dollar and at noon was 7.2339, down slightly from the close of the previous session, according to Reuters.
Additional report from Beijing by Sun Yu