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China inflation 'miss' spurs easing talk

China's inflation in May came in lower than expected, offering more evidence that Asia's largest economy is stalling and suggesting more easing may be on the way.

"We haven't really seen any stabilization for growth in China yet," Johanna Chua, head of Asia economics and market analysis at Citigroup, told CNBC. "Even though lending rates are coming down, they need to come down lower to support growth."

China's consumer price inflation (CPI) rose 1.2 percent in May from the year-earlier period, slightly below the 1.3 percent forecast in a Reuters poll and below the 1.5 percent rise in April. Producer prices in May fell 4.6 percent from a year earlier; it had been expected to slide 4.5 percent in May, the Reuters survey showed. Producer prices eased 4.6 percent in April.

China's Shanghai Composite opened down 0.65 percent, while Hong Kong's Hang Seng index nursed a modest loss of 0.2 percent. Meanwhile, the Australian dollar dropped below $0.7700, from around $0.7712 prior to the data.

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A slew of recent data have missed analysts' expectations. In what may be another sign of weak domestic demand, China's imports tumbled 17.9 percent in May, more than the 10.7 percent drop forecast in a Reuters poll, data released Monday showed.

In the first quarter, China's economic growth slowed to 7.0 percent, its slowest in six years. China's economy expanded 7.4 percent in 2014, its slowest pace in 24 years and undershooting the government's target for the first time since 1998.

So far, the People's Bank of China (PBOC) has cut interest rates three times in the past six months amid concerns that the government's annual gross domestic growth (GDP) target of "around 7 percent" could be at risk. The latest rate cut followed two rounds of cuts in the reserve requirement ratio (RRR) of major banks, the latest one bringing the rate down to 18.5 percent.

"Further monetary policy easing is highly needed," ANZ said in a note Tuesday, noting that the slower CPI inflation rate suggests "lukewarm" domestic demand. It cut its CPI inflation forecast to 1.5 percent for 2015 from 1.8 percent previously. ANZ expects PPI will remain in negative territory.

To be sure, some expect the relatively stagnant prices may pick up again in months to come.

"A sharp fall in pig numbers in recent months will likely put upward pressure on pork price inflation," Julian Evans-Pritchard, China economist at Capital Economics, said in a note Tuesday.

Pork prices rose 5.3 percent on-year in May, slower than April's 8.3 percent on-year rise, he noted, calling it one of China inflations "key swing factors." Overall, food prices in May rose 1.6 percent from the year-ago period.

"More broadly, the sharp fall in global commodity prices during the second half last year will soon provide a much weaker base for comparison that should push up both CPI and PPI, which ought to help assuage any lingering concerns over deflation," Evans-Pritchard said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1