China’s soft inflation points to need for more stimulus

Soft Chinese inflation and G20 concerns that the global recovery remains grim are hardening views among some economists that more government stimulus will be needed to support China, the world's second-biggest economy.

Consumer inflation last month remained under the official target of about 3 per cent for this year, data released on Sunday showed, indicating persistently weak domestic demand.

The consumer price index (CPI) rose 1.9 per cent in June from a year earlier, compared with a 2 per cent increase in May, China’s National Bureau of Statistics said. Analysts had expected a 1.8 per cent gain.

Against that backdrop of slack price growth, international trade remains weak and the country is plagued by massive overcapacity, particularly in coal and steel, and debt-ridden zombie companies.

Externally, China faces a global recovery that its trade minister on Saturday described as “complicated and grim”.

"In our view, while China reiterates the importance of supply-side reform due to debt and overcapacity concerns, the authorities still need to stimulate demand in order to achieve its growth target," Zhou Hao, senior Asia emerging market economist at Commerzbank in Singapore, said in a note.

The People’s Bank of China last cut interest rates in October, the seventh time since late 2014.

– (Reuters)