Industry experts have provided forward-looking analysis on the trends for China's Consumer Price Index (CPI) and Producer Price Index (PPI) in June.
There is a general consensus among analysts that, with overall agricultural product prices continuing their downward trend and two reductions in domestic refined oil product prices during June, the CPI may shift from a positive to a negative month-on-month change, while maintaining a mild year-on-year increase. Meanwhile, with international crude oil prices continuing to fall and domestic industrial product prices broadly declining, the PPI's month-on-month growth rate is expected to turn negative, with its year-on-year increase likely widening.
CPI Projections
Regarding the CPI, Wen Bin, Chief Economist at China Minsheng Bank, forecasts a month-on-month decrease of 0.3% and a year-on-year increase of 1.0% for June. Bian Quanshui, Chief Macro Analyst at Western Securities, anticipates a possible negative month-on-month growth rate for the CPI, with a year-on-year rise of 1.2%. A research report from Huachuang Securities indicates expectations for the CPI to fall by approximately 0.1% month-on-month, with the year-on-year rate remaining flat compared to May at around 1.2%.
Wen Bin elaborated that the average value of the wholesale price index for agricultural products in June was 112.6 points, marking a month-on-month decline of 1.4%. Breaking it down, fruit prices fell by 3.3% month-on-month due to increased supply from the concentrated seasonal harvest of various summer fruits. Pork prices dropped by 2.0% month-on-month, as warmer weather led to generally weaker consumption and sluggish market activity. Vegetable prices rose by 1.9% month-on-month due to seasonal crop rotation. Egg prices increased by 11.7% month-on-month, a result of tight supply coinciding with a concentrated release of demand. Concurrently, the continued unwinding of risk premiums in international oil prices led to two consecutive price cuts for domestic refined oil products.
On core CPI, Wen Bin noted that the services business activity index for June stood at 50.4%, up 0.1 percentage points from May, indicating an improvement in business climate that supports related service prices. Driven by the graduation season in June, a concentrated release of short-term rental demand pushed the average residential rent across 50 cities up by 0.08% month-on-month. However, clothing prices typically show a seasonal decline, mainly driven by end-of-season clearance sales and e-commerce promotions.
PPI Outlook
For the PPI, Wen Bin projects a month-on-month increase of 0.2% and a year-on-year rise of 4.5% for June. Bian Quanshui suggests that the PPI's month-on-month growth rate may turn negative, with the year-on-year growth rate edging up slightly to 4.1% from May's figure. The Huachuang Securities research report also forecasts a PPI month-on-month change of around -0.2%, with the year-on-year rate increasing from 3.9% to approximately 4.1%.
Wen Bin stated that the main raw material purchase price index and the ex-factory price index for June were 54.2% and 48.2%, respectively, down by 6.3 and 3.7 percentage points from May. The ex-factory price index fell below the boom-bust line, while the increase in raw material purchase prices narrowed, continuing the divergence between upstream and downstream sectors. The average month-on-month increase in the weekly production material price index compiled by the Ministry of Commerce was 0.66% for the month, lower than the 1.4% in May, marking the second consecutive month of decline. Based on PMI indicators and high-frequency data, it is anticipated that the PPI may see a slight month-on-month increase in June. However, due to a lower base from the same period last year, the year-on-year increase is likely to be higher than in May.
The Huachuang Securities report suggests that the PPI year-on-year rate may be approaching its peak for the year. The current rapid decline in oil prices has offset the favorable low base effect from June to July. Even if prices in the midstream equipment manufacturing sector continue to support the PPI month-on-month, it would be difficult to counterbalance the drag from the crude oil and chemical industry chain. The spot price of Brent crude oil has essentially fallen back to levels seen before the recent international geopolitical conflict. From March to May, the crude oil and chemical chain contributed an average of about 0.8 percentage points to the PPI's month-on-month growth. A large portion of this contribution may turn into a drag from June to August. The contribution of the midstream equipment manufacturing sector to the PPI's month-on-month change averaged about 0.15 percentage points per month in the first five months of this year, insufficient to offset the price declines in the crude oil and chemical chain.
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