China: CPI mildly positive after four preceding months of deflation – UOB Group

China’s Consumer Price Index (CPI) turned mildly positive in Jun after declining from Feb till May. Headline CPI rose 0.1% y/y (Bloomberg est: -0.1%; May: -0.1%). Core CPI (excluding food & energy) edged up slightly to 0.7% y/y from 0.6% y/y in May. The National Bureau of Statistics (NBS) attributed the rebound in CPI mainly to prices of industrial consumer goods (-0.5% y/y; May: -1.0%), which in turn was led by a smaller decline in energy prices and increase in prices of gold and platinum jewelry, UOB Group's economist Ho Woei Chen reports.

Downward pressure persists

"China’s Consumer Price Index (CPI) turned mildly positive in Jun at 0.1% y/y after declining from Feb till May. This was attributed mainly to the rebound of industrial consumer goods prices (-0.5% y/y; May: -1.0%), which in turn was led by a smaller decline in energy prices and increase in prices of gold and platinum jewelry."

"Producer Price Index (PPI) fell -3.6% y/y and -0.4% m/m in Jun. The continued trend in sequential decline indicates a sustained downward trajectory. One of the reasons cited was the slowdown in global trade growth which depresses prices of some industries with a relatively high export share."

"In 1H25, headline and core CPI averaged -0.1% y/y and 0.4% y/y respectively while PPI averaged -2.8% y/y. Taking into account of 1H25 outturn and growth risks, we revise lower our forecasts for 2025 CPI to -0.2% (from 0.0%) and PPI to -2.7% (from -2.5%). For the monetary policy, we expect an additional 10-bps interest rate cut in 4Q25 with the 7-day reverse repo rate, 1Y LPR and 5Y LPR to end the year at 1.30%, 2.90% and 3.40% respectively."