Although consumer prices gained momentum in June, producer prices remain fixed in deflation, which has heightened worries over the lethargic Chinese economy.
The consumer price index (CPI) jumped by 1.4 percent year on year in June from 1.2 percent in May, the National Bureau of Statistics reported on Thursday. The data came in above the 1.3 percent pace of growth anticipated by economists.
"The data continues to point out the weak domestic demand in the real economy. Given the stabilising of consumer prices, we think there is still room for the central bank to ease its monetary policy," said an analyst. A further rate cut is expected in the next few months.
If further monetary easing is implemented, borrowing costs and stock prices - which have been hit by a crisis wave - may be lowered, reducing the negative effect of the downturn on the Chinese economy.
Meanwhile, the producer price index (PPI) fell by 4.8 percent in June, missing a forecast 4.5 percent which was predicted after a fall of 4.6 percent in May. PPI has now been in the negative territory for three years, highlighting sustained pressure on profit margins at Chinese companies
According to economists, the lingering PPI deflation implies a serious problem with overcapacity and the deleveraging process will take time to reach desired levels.
China’s gross domestic product (GDP) expanded by 7.0 percent in the first quarter, displaying the worst performance since 2009. The next set of GDP data is now scheduled for release on July 15.