beijing chinas producer prices fell at their fastest pace in over seven years in june while consumer prices teetered on the edge of deflation adding to the case for policymakers to use more stimulus to revive sluggish demand the worsening factorygate price deflation and the move by consumer prices towards deflation for the first time since february 2021 bode ill for chinas economic growth momentum in chinas postpandemic recovery has slowed from a brisk pickup seen in the first quarter with demand for industrial and consumer products weakening raising concerns about the health of the worlds secondlargest economy we think the more challenging deflation environment and sharp slowdown in growth momentum support our view that the pboc has entered a ratecutting cycle said economists at barclays in a research note the producer price index ppi fell for a ninth consecutive month in june down 54 from a year earlier the national bureau of statistics nbs said on monday the steepest decline since december 2015 that compared with a 46 drop in the previous month and a 50 fall tipped in a reuters poll of analysts the consumer price index cpi was unchanged yearonyear compared with the 02 gain seen in may driven by a faster fall in pork prices that dashed expectation for a 02 rise and was the slowest pace since february 2021 nomura expects consumer prices to fall 05 yearonyear in july even taking into account a potential rise in service inflation as a result of the summer holiday season the weakerthanexpected inflation readings knocked financial markets with the yuan falling and asian stocks also dipping into the red we expect headline inflation to rise to around 1 by the end of this year but this would still be soft and wont constrain the pbocs ability to loosen policy further said economists at capital economics that said with credit demand weak and the currency under pressure we think the bulk of support will come through fiscal policy we expect only another 10 basis points of policy rate cuts this year beijing has set a target for average consumer inflation in 2023 of about 3 prices rose 2 yearonyear in 2022 china last month cut policy rates to boost liquidity and vowed to take measures to promote household consumption for producer prices the biggest yearonyear declines were seen in energy metals and chemicals as domestic and foreign demand weakened the accelerating decline in ppi reflects the still weak real estate and construction sector as well as the strength of industrial production said bruce pang at chief economist at jones lang lasalle however the yearonyear decline in the ppi is likely to have bottomed out and is expected to narrow gradually in the second half of the year said pang chinas central bank is likely to cut lending rates further said hu yuexiao analyst at shanghai securities who expects reductions in the reserve requirements ratio and interest rates in the second half however economists say small cuts in rates will