China's inflation still soft

China CPI inflation is expected to remain unchanged at 1.5% yoy in May. Wholesale prices of agricultural products continued to drop in May, suggesting weaker food CPI inflation. That said, administrated fuel prices were raised further, which would offset part of the weakness in food inflation. The rebound in housing prices is also likely to add some upside pressures to non-food CPI inflation. 

Stable CPI inflation offers room for the central bank to conduct more easing measures against a backdrop of lacklustre domestic demand. Thanks to steadily rising crude oil prices and stabilising iron ores prices, the input price PMI rebounded strongly to 49.4 in May from 47.8 in April. The decline in the Producer Price Index (PPI) is likely to have narrowed to -0.1% mom in May from -0.3% mom previously. However, due to a negative base effect, headline yoy rate of PPI probably will remain unchanged at - 4.6%, according to Societe Generale.