Will China's Low Inflation Persist? June Also Expected to Stay in the 0% Range

China's low inflation trend is expected to continue in June. While pork prices are leading the decline in food prices, prices of industrial goods are struggling to rebound due to weak demand.

As the National Bureau of Statistics of China prepares to release the June Consumer Price Index (CPI) on the 10th, major institutions predict that the inflation rate will remain in the 0% range last month as well. Huatai Securities Research Institute forecasts a 0% increase, while CITIC Securities Research Team expects a 0.1% rise. The Industrial Research Macro Research Team and Zhixiang Securities Macro Research Team each anticipate a 0.2% increase. The highest forecast comes from China International Capital Corporation (CICC), which predicts a 0.3% rise.

The CITIC Securities Research Team diagnosed that "the sharp drop in industrial goods prices may still delay the recovery of core CPI," and CICC explained that "a combination of crop changes, the hot and humid temperatures of spring and summer, and last June's low base effect" are factors, adding that "pork prices are a particular factor in the CPI decline."

China's CPI inflation rate recorded 0% levels for three consecutive months in March (0.7%), April (0.1%), and May (0.2%). The aforementioned pork prices suppressed inflation, with prices falling 3.2% in May alone. Following pork, beef prices are also declining. According to Zhixiang Securities, China's beef imports from January to May this year increased by 8% compared to the same period last year, but import value decreased by 4.2%. On the other hand, vegetable prices, including napa cabbage, rose significantly due to supply chain issues, helping to defend against negative inflation.

Zhixiang Securities observed that "meat prices fell sharply in June, and it is also the off-season for meat consumption seasonally," adding that "demand is expected to increase in the second half of the year, and live pig prices will gradually rise from the third quarter."

The Producer Price Index (PPI) is also expected to continue its downward trend. The May PPI fell 4.6% year-on-year, marking five consecutive months of decline. The market expects the drop last month to deepen further, reaching the -5% range.