China June Consumer Inflation Cools, More Stimulus Eyed

China's consumer inflation cooled slightly more than expected in June, pointing to lingering weakness in the economy which could prompt Beijing to launch further stimulus measures to shore up growth.

The consumer price index (CPI) rose 2.3 per cent in June from a year earlier, missing the market forecast of 2.4 per cent, with pork prices as the main drag, the National Bureau of Statistics said on Wednesday.

The producer price index (PPI) dropped 1.1 per cent in its 28-month straight fall, versus a market consensus of a fall of 1 per cent, signalling that demand in the domestic economy remained lukewarm, despite some initial signs of stabilisation seen recently.

"The weak inflation data leaves more scope for Beijing to step up use of targeted measures and even opens the opportunity window for blanket easing policy, such as an interest rate cut, to support economic growth," said Wang Jin, an analyst at Guotai Junan Securities in Shanghai.

Asian share markets slightly extended early losses after the inflation data, though the Australian dollar was little changed.

The CPI fell 0.1 per cent in June from May, versus a forecast of no change in monthly prices.

In the first half of this year, average consumer inflation was 2.3 per cent, way below the official ceiling of 3.5 per cent set by the government at the start of the year.

With inflation clearly not a threat, the government and central bank will have scope to loosen policies further to bolster the economy if needed, without risking a potentially destabilising spike in prices.

Chinese Premier Li Keqiang said earlier this week that economic growth quickened in the second quarter from the previous three months. But he added the economy still faces downward pressure and further modest stimulus measures will still be needed to boost activity.

The latest Reuters poll showed China's economy probably steadied in the second quarter, with annual growth holding firm at 7.4 per cent, as a slew of government policy measures kick in.

Beijing has stepped up policy support in recent months to give a lift to economic growth, which dipped to an 18-month low in the first quarter.

Such measures include targeted reserve requirement cuts for some banks, quicker fiscal disbursements and hastening construction of railways and public housing projects.

The central bank said on Monday that it would use a mix of various monetary tools to keep overall liquidity at an appropriate level to support the economy.

Copyright: Thomson Reuters 2014