CPI edges up in June as effects of fiscal, monetary policy begin to take hold

China's consumer price index, a main gauge for inflation, rose 0.1 percent year-on-year in June, marking the end of a four-month decline and suggesting that the country's initiatives to boost consumption are translating into greater consumer confidence and spending, analysts said.

The core CPI, which excludes food and energy prices, climbed 0.7 percent year-on-year in June, up 0.1 percentage points compared to the rise registered in May, according to data released by the National Bureau of Statistics this month.

"The core CPI marked its highest level in 14 months," said Dong Lijuan, a statistician with the bureau. "The effects of government policies to boost consumption have continued to show."

Feng Lin, executive director of the research and development department at Golden Credit Rating International, said that given the unsettled external conditions, China is set to intensify its trade-in program and other measures to stimulate consumption, which are expected to provide crucial support for the country's price trajectory.

Feng cautioned that the ongoing downward pressure in the real estate market and the potential adverse impact of the trade war between China and the United States on consumer confidence will require close monitoring in the period ahead.

China has outlined a GDP growth target of around 5 percent and an inflation target of around 2 percent for this year, according to the Government Work Report released in March. Analysts believe that there is still ample room for more proactive fiscal and moderately accommodative monetary policies to bolster prices and drive demand.

China's CPI recorded a cumulative year-on-year decline of 0.1 percent in the first half of the year, while the core CPI, which excludes volatile food and energy prices and better reflects the underlying price level, rose a modest 0.4 percent over the same period, Feng said.

"Both figures indicate a trend of relatively weak inflationary pressures in the world's second-largest economy," he added.

Wen Bin, chief economist at China Minsheng Bank, said, "The current domestic price level is stable but on the softer side, with insufficient consumer demand being the primary driver."

Wen noted that this climate of modest inflation provides ample policy space for the government to ramp up its monetary and fiscal support measures to boost consumption and investment, effectively offsetting external shocks.

"We expect to see both the accelerated issuance of government bonds and potential expansion in fiscal funds in the coming months as the government seeks to provide a stronger boost to the economy," Wen said.

On the monetary front, policymakers are likely to maintain a moderately accommodative stance, while intensifying their efforts to channel more support to the real economy and government financing initiatives, potentially including additional reserve requirement ratio cuts and interest rate reductions, he said.