Data from the National Bureau of Statistics indicated that in March, following the Spring Festival holiday, consumer demand seasonally declined. The Consumer Price Index (CPI) fell by 0.7% month-on-month but rose by 1.0% year-on-year. The core CPI, which excludes food and energy prices, increased by 1.1% compared to the same period last year. Influenced by factors such as rapidly rising international commodity prices and improved supply-demand dynamics in certain domestic industries, the Producer Price Index (PPI) increased by 1.0% month-on-month, marking the sixth consecutive month of growth. Year-on-year, the PPI rose by 0.5%, the first increase after 41 consecutive months of decline.
The year-on-year increase in CPI moderated slightly to 1.0% in March, maintaining a mild upward trend. Prices for industrial consumer goods rose by 2.2%, accelerating by 1.1 percentage points from the previous month. Service prices increased by 0.8%, though the rate of increase slowed by 0.8 percentage points compared to February. Food prices saw a modest increase of 0.3%, with growth decelerating by 1.4 percentage points from the prior month.
The month-on-month decline of 0.7% in the CPI was primarily attributed to seasonal decreases in food and service prices. Food prices shifted from a 1.9% increase in February to a 2.7% decrease in March. Service prices turned from a 1.1% increase to a 1.1% decrease. Conversely, prices for industrial consumer goods rose by 1.0% month-on-month, a faster pace of increase by 0.6 percentage points, influenced by international import factors and recovering demand for some domestic products.
The year-on-year PPI turned positive in March, increasing by 0.5% compared to a 0.9% decline in February. This represents the first year-on-year increase after 41 months of consecutive decreases. The main characteristics of the PPI's performance this month were twofold. Firstly, international factors impacted price increases or narrower declines in related domestic industries. Prices in non-ferrous metal mining and dressing, as well as non-ferrous metal smelting and rolling processing, saw accelerated growth. Prices for petroleum and natural gas extraction turned from decline to growth, while the decline in prices for petroleum, coal, and other fuel processing, and for raw chemical materials and chemical products, narrowed compared to the previous month. Secondly, improved supply-demand relationships in certain domestic industries led to price increases. Prices for manufacturing of photovoltaic equipment and components, and for lithium-ion battery manufacturing, rose by 5.2% and 2.5% respectively. Reflecting the growth of new economic drivers, prices for optical fiber manufacturing surged by 76.1%, external storage equipment and components increased by 21.1%, and electronic specialty materials manufacturing rose by 18.7%. Prices for biomass fuel processing and comprehensive utilization of waste resources increased by 6.1% and 0.9%, respectively, indicating empowerment through green transformation.
The month-on-month PPI increase of 1.0% in March was the sixth consecutive monthly rise, with the growth rate accelerating by 0.6 percentage points from February, marking the largest increase in 48 months. The primary driver for the expanded PPI growth was the rapid increase in prices for domestic petroleum-related industries, heavily influenced by significant rises in international crude oil prices. Prices for non-ferrous metal smelting and rolling processing increased by 1.0%, though the rate of growth slowed by 3.6 percentage points from the previous month.
For the first quarter overall, the CPI increased by 0.9% year-on-year, while the PPI decreased by 0.6% year-on-year. The general price trend during the first quarter is viewed positively. The narrowing gap between PPI and CPI in March suggests an improvement in profit distribution between upstream and downstream industries, which is beneficial for enhancing corporate operations and promoting employment and income growth for residents. With multiple government departments coordinating efforts following the National People's Congress sessions to steadily guide prices back to reasonable levels, the price situation is expected to continue improving in the next phase.
Looking ahead, as spring consumption demand is gradually released, prices for some food items may stabilize and rebound. Combined with the ongoing recovery in service consumption, there is a possibility for the month-on-month CPI to turn positive again. With holidays like Labor Day approaching, service consumption is expected to experience a new wave of growth, potentially stabilizing and increasing prices for transportation, tourism, and catering. Concurrently, the effects of capacity reduction in key food items like pork are gradually materializing, reducing their downward pressure on the CPI. From a macroeconomic perspective, supported by coordinated monetary and fiscal policies, consumer prices are expected to resume a mild upward trajectory, aligning with the broader trend of economic recovery. However, given uncertainties in energy and international commodity prices, the CPI path will likely remain characterized by mild fluctuations rather than sharp increases. Overall, a return to positive month-on-month CPI growth in the short term is possible, and maintaining a mild year-on-year increase for the full year remains the most probable outcome.
The rapid rise in the March PPI was primarily driven by imported supply shocks, with strong price increases in mid- and upstream sectors. However, the momentum for price increases in downstream processing industries and consumer goods remained weak. This is partly because the cost impact from rising crude oil prices takes time to transmit down the industrial chain. More importantly, the ongoing adjustment in the real estate market, coupled with the need for further stimulation of consumption and investment demand, means the issue of insufficient effective demand persists. This continues to exert pressure on prices in downstream sectors closer to final consumer demand. Against this backdrop, close attention is needed regarding the potential erosion of downstream industry profits caused by rising costs and challenges in passing these costs through to final prices.
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