China's factory-gate prices fell at the fastest pace in over seven-and-a-half years in June, while consumer inflation was at its slowest since 2021, adding to the case for policymakers to use more stimulus to revive sluggish demand.

Momentum in China's post-pandemic economic recovery has slowed from a brisk pickup seen in the first quarter amid faltering manufacturing and lackluster consumer confidence.

The producer price index (PPI) fell for a ninth consecutive month, down 5.4% from a year earlier, marking the steepest decline since December 2015. That compared with a 4.6% drop in the previous month, and a forecast for a 5.0% fall in a Reuters poll of analysts.

The consumer price index (CPI) was unchanged year-on-year, compared with the 0.2% gain seen in May, the National Bureau of Statistics (NBS) said, driven by a faster fall in pork prices. That was the slowest pace since February 2021 and missed the 0.2% rise expected in the Reuters poll.

The weaker-than-expected inflation readings knocked financial markets with the offshore yuan paring earlier gains.

"We expect headline inflation to rise to around 1% by the end of this year. But this would still be soft and won't constrain the PBOC's ability to loosen policy further," said economists at Capital Economics at a research note.

"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."

China last month cut policy rates to boost liquidity and vowed to take measures to promote household consumption.

Beijing has set a target for average consumer inflation in 2023 of about 3%. Prices rose 2% year-on-year in 2022.

Core CPI, excluding the volatile prices of food and energy, rose 0.4% year-on-year, slowing from 0.6% in the previous month.