China Inflation to bottom out

The biggest contributor for China's CPI should have been faster food inflation. The high-frequency agriculture prices pointed to a mom increase of 0.5% in food CPI in June, compared with -0.9% in May. 

If that proves to be the case, the yoy rate of food CPI should have ticked up by a full percentage point to 2.7%. In addition, housing inflation likely edged up further amid the strong recovery of housing prices in major cities. CPI is on a slow-moving upward trend, partially thanks to base effects. 

"China CPI is expected to rebound to 1.4% yoy from 1.2% yoy in May", forecasts Societe Generale.

If this is indeed the case, it will limit the scope of further easing for the PBoC. PPI likely remained unchanged at -4.6% yoy in June, implying a mom rate of -0.3% (vs -0.1% in May). In both the Markit and official PMI reports, the input price index deteriorated in June, indicating that there are still immense deflationary pressures on the manufacturing sector.