China: Inflation And Deflation Both Moderated In June

Econintersect:  China's CPI (Consumer Price Index) was 2.3% in June (year-over-year), down from 2.5% in May and well below the official target of 3.5% set by the government.  The reading for June was almost identical to the 2.25% average for the first six months of 2014 and well below the 2.85% average for the second half of 2013 and 2.62% for all of 2013.  Food was the main driver of the average price index in June.  Fruit prices were up almost 20% from June 2013.  Without food, inflation was 1.7% for June 2014 compared to June 2013.

China experienced its 28th consecutive month of PPI (Producer Price Index) deflation in June, but the year-over-year decline remained at 1.1% for the second month in a row.  This was the smallest amount of deflation in over two years.

In spite of more than two years of deflating PPI and a continuing domwtrend in CPI, not many economists think deflation is a risk for China.  Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong is quoted by Bloomberg:

"Deflation is not a threat.  [Consumer inflation suggests aggregate demand is still weak and the pace leaves] enough space for additional mini-stimulus measures if they are necessary."