The confluence over the weekend of the release of weak price data from China and a grim summary of the global economic outlook from the G20 trade ministers meeting in Shanghai suggests more easing from the People’s BAnk of China is likely.
The release of the June consumer price data showed China’s inflation rate remains under downward pressure. The annual rate of increase for consumer prices fell to a 5 month low of 1.9% in June from 2% in May, data from the National Bureau of Statistics showed.
Food prices eased again and were up on 4.6% which though still high is a sharp deceleration on the 5.9% pace the month before as the pace of pork price growth continues to slow. The data showed the price of pork fell from May’s 33.6% rise to a still mind-boggling 30.1% for the Chinese staple.
Non-food prices rose just 1.1%.
Producer prices in China extended their run of deflation to 51 months with a print of -2.8% in June.
Taken together this – along with some incredibly bearish comments from China’s trade Gao Hucheng about the outlook for global growth – points to an increasing chance of more stimulus from China’s central bank.
Reuters reports Gao said the global economic recovery remained “complicated and grim”.
“Global trade is dithering, international investment has yet to recover to levels before the financial crisis, the global economy has yet to find the propulsion for strong and sustainable growth,” Gao said.
That’s going to make the achievement of China’s growth target problematic.
Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore, said in a note to clients over the weekend that while China is still reiterating the need for supply-side reform “authorities still need to stimulate demand in order to achieve its growth target”.