China’s inflation came in at only 0.20%YoY in June 2024 as consumers remained cautious about spending

• China’s inflation in June 2024 remained low at 0.2%YoY, as food prices contracted by 2.1%YoY, particularly fruits and vegetables amid unfavorable weather conditions. Prices of durable goods also recorded a steady contraction of 1.3%YoY, with car prices declining by 5.3%YoY. Additionally, specific factors, particularly the declines in goods prices during the mid-year 618 shopping festival, caused China’s inflation to remain benign. However, hikes in high-speed rail fees and utility costs, including water and power, helped support inflation somewhat (though such fees and costs constitute only 5% of the inflation index). Meanwhile, the core inflation index for June 2024 remained unchanged from May 2024 at 0.6%YoY.
• Excess production capacity continued to pressure consumer good prices in June 2024. The Producer Price Index contracted by 0.8%YoY due to the low base of the previous year and rising commodity prices, including coal. However, producer prices in the durable consumer goods category and car prices saw steeper contraction than the overall Producer Price Index, falling by 2.1%YoY and 2.3%YoY, respectively. This indicates that excess production capacity will continue to pressure consumer goods prices ahead.
•  Looking into the remainder of 2024, China’s inflation is expected to remain within positive territory but at a low level, as consumer confidence has yet to fully recover from the persistent sluggishness seen in the real estate sector, including issues related to excess production capacity that will continue to presure product prices. According to the Bloomberg consensus, China’s Inflation Index and Producer Price Index will stand at 0.6% and (-)1.0% by the end of 2024, prompting the People’s Bank of China to cut interest rates and implement other measures, including extending the old-for-new initiative to stimulate domestic consumption.    

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