China's consumer price growth decelerated in June while factory prices eased but remained in deflationary territory, raising hopes for stronger economic stimulus measures at an upcoming Communist Party policy meeting.

According to official data from the National Bureau of Statistics released on Wednesday, consumer prices rose by 0.2% year-on-year in June, down from a 0.3% increase in May and below the 0.4% growth forecasted by a Bloomberg poll of analysts.

The producer price index fell by 0.8% year-on-year last month, an improvement from May's 1.4% contraction. Although the factory gate price index has strengthened over the past three months and met analysts' expectations, the data highlights ongoing concerns about weak consumer spending in the world's second-largest economy.

“The risk of deflation has not faded in China,” noted Zhiwei Zhang, chief economist at Pinpoint Asset Management, pointing to continued weak domestic demand.

Falling food costs significantly impacted consumer prices. Fresh vegetable prices dropped by 7.3% year-on-year in June, while fruit prices fell by 8.7% and beef prices declined by 13.4%.

Low business confidence has left Beijing heavily reliant on exports and industrial output to drive economic growth. However, this strategy is becoming less viable as trade partners, including the EU and the US, push back against a surge of cheap goods, accusing China of dumping. The EU recently imposed new import tariffs of up to 38% on Chinese electric vehicles.

Even developing countries with typically favorable trade relations with China, such as Mexico and Brazil, have imposed new levies on Chinese steel products.

This growing global backlash has prompted Beijing's policymakers to explore alternative ways to support the economy, which is also hindered by a prolonged property sector slowdown.

Ahead of the Chinese Communist Party’s third plenum, a key economic policy meeting scheduled for next week, Premier Li Qiang has been conducting a listening tour to gather input from Chinese economists, entrepreneurs, and foreign businesses.

However, experts argue that Beijing's current policies have not been sufficient to stabilize economic growth. A government fund to purchase unsold housing inventory has not stopped the decline in real estate prices, and a “trade-in” program for home appliances and other durable goods has had limited success due to restrictive conditions.

Top Chinese economists are optimistic that President Xi Jinping will introduce new policies at the upcoming plenum to boost domestic demand, including enhancing the social safety net as part of his "common prosperity" initiative.

Analysts suggest that anticipated rate cuts by the US Federal Reserve, potentially as early as September, would give the People’s Bank of China more leeway to loosen monetary policy without putting pressure on the currency.

“We believe real interest rates are too high given the current state of the economy and think that the economy would benefit more from rate cuts,” said Lynn Song, chief China economist at ING.