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China Producer, Consumer Inflation Held Steady in June -- Update

10 Jul 2017 4:14 am

China's producer-price inflation held steady in June, ending a three-month deceleration that raised concerns about the side effects of Beijing's efforts to reduce financial risk and leverage.

Consumer inflation was also unchanged from May. The producer index was up 5.5% from a year earlier while consumer prices were up 1.5%, according to the National Bureau of Statistics.

China's PPI turned positive only last September after falling for nearly five years, a decline that burdened industrial companies with shrinking profits and increasing debt. While June's gain was the 10th in a row, the index had started to sag again in February, weighed down by slower credit growth at home and falling global commodity prices, economists say.

"The upshot is that, having eased in previous months, price pressures appear to have stabilized in June," said Julian Evans-Pritchard, an economist with Capital Economics, adding a pickup in domestic steel prices was a key to steadying June's PPI.

The result could be improved corporate profits that would lead more companies to restock--meaning China's second-half economic prospects may be not as bad as many expected, said Liu Xuezhi, an economist at Bank of Communications.

In the consumer index, growth in nonfood prices slowed from May while food prices took a smaller drop, the statistics bureau said. The result was well below Beijing's annual target for this year of 3%. Economists say the muted inflation won't be a major driver of monetary policy.

Beijing has made reducing financial risk and leverage the priority this year. Economists expect growth to lose steam from the first quarter's strong 6.9% pace, as higher financing costs and less available credit squeeze economic activity.

"With slowing credit growth likely to weigh on economic activity in coming quarters we think that, volatility in food prices aside, inflation still has further to fall," said Capital Economics' Mr. Evans-Pritchard. "This will disappoint those hoping for a sustained period of reflation that could help to erode corporate debt burdens."

Grace Zhu and Liyan Qi

(END) Dow Jones Newswires

July 10, 2017 00:14 ET (04:14 GMT)

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