China's inflation to bottom out

China will release CPI data for June on 9th July.

China's CPI is likely to rebound to 1.4% yoy from 1.2% yoy in May, forecasts Societe Generale. The biggest contributor 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. We think that CPI is on a slow-moving upward trend, partially thanks to base effects. 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), estimates Societe Generale. 

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.