Data released by the National Bureau of Statistics on July 9th indicates that in June, the Consumer Price Index (CPI) fell by 0.3% month-on-month but increased by 1.0% year-on-year. The Producer Price Index for Industrial Products (PPI) also decreased by 0.3% month-on-month, while its year-on-year growth accelerated to 4.1%. On average, the national CPI for the first half of the year rose by 1.0% compared to the same period last year. Analysts suggest that consumer prices have continued the moderate recovery trend observed since the fourth quarter of last year. Looking ahead to the second half of the year, the foundation for maintaining stable price levels remains intact, with consumer prices expected to continue a mild upward trajectory.
Seasonal Decline in Food Prices
According to Dong Lijuan, Chief Statistician at the Department of Urban Surveys of the National Bureau of Statistics, the CPI rose 1.0% year-on-year in June, with the growth rate decelerating by 0.2 percentage points from the previous month. The core CPI, which excludes food and energy prices, increased by 1.0% year-on-year, maintaining its gentle pace of growth.
Analyzing the year-on-year figures, Dong Lijuan noted that the slowdown in CPI growth was primarily influenced by a narrowing increase in the prices of industrial consumer goods. International input factors drove domestic industrial consumer goods prices up by 2.9%, a rate 1.0 percentage points lower than the previous month. This contributed approximately 0.90 percentage points to the year-on-year CPI increase, a pull-back effect about 0.28 percentage points smaller than in May. Service prices rose by 0.8%, the same rate as the previous month, contributing about 0.40 percentage points to the CPI increase. Food prices fell by 1.6%, with the rate of decline narrowing by 0.1 percentage points from May.
On a month-on-month basis, the national CPI declined by 0.3%. Dong Lijuan highlighted three contributing factors. The first was a decline in energy and precious metal prices. Influenced by fluctuations in international market prices, domestic gold jewelry and gasoline prices saw their declines widen. Specifically, gold jewelry and gasoline prices fell by 8.7% and 4.9% respectively, with the declines expanding by 5.9 and 4.6 percentage points compared to May. Together, these factors contributed to a month-on-month CPI decrease of approximately 0.22 percentage points.
The second factor was a seasonal decrease in food prices. With seasonal fruits and vegetables entering the market in large quantities, prices for fresh vegetables and fresh fruits fell by 1.0% and 2.0% respectively. Prices for pork and aquatic products declined by 0.8% and 0.6%. However, egg prices rose by 7.0%, driven by a low inventory of egg-laying hens and reduced egg production rates due to high temperatures.
The third factor was a stabilization in service prices, shifting from a previous decline to flat. "Influenced by airlines reducing fuel surcharges and a seasonal dip in travel demand, prices for hotel accommodation, air tickets, and travel agency fees fell by 5.3%, 4.0%, and 0.7% respectively," Dong Lijuan stated.
Industrial Upgrading Drives Demand in Specific Sectors
In June, the PPI fell by 0.3% month-on-month but increased by 4.1% year-on-year, with the year-on-year growth rate expanding by 0.2 percentage points from May. Analyzing the month-on-month changes reveals three key characteristics of the PPI's performance.
First, declining international crude oil prices impacted the energy supply chain. Prices for petroleum extraction fell by 16.0% month-on-month, while prices for refined petroleum product manufacturing dropped by 3.1%. The declines in these sectors widened by 14.2 and 2.8 percentage points respectively from the previous month. Prices in the chemical raw materials and chemical products manufacturing sector, as well as chemical fiber manufacturing, shifted from growth to decline.
Second, seasonal factors led to price divergence in some industries. Preparations for peak summer electricity demand and increased demand for cooling products drove a 5.6% month-on-month increase in coal mining and washing prices, along with a 0.6% rise in household refrigeration appliance manufacturing prices. Conversely, prices for hydro, solar, and wind power generation fell by 9.1%, 2.5%, and 2.2% respectively.
Third, accelerated industrial upgrading boosted demand in certain sectors. "With the expanding application scenarios for artificial intelligence, the widespread use of new raw materials and materials, and the continuous advancement of green transformation," Dong Lijuan analyzed, prices for virtual reality device manufacturing rose by 8.4% month-on-month, wearable smart device manufacturing increased by 3.4%, industrial control computer and system manufacturing grew by 3.3%, and industrial robot manufacturing edged up by 0.5%. Additionally, electronic special material manufacturing prices rose by 2.5%, carbon-based nanomaterial prices increased by 1.9%, and waste resource comprehensive utilization industry prices grew by 0.4%.
From a year-on-year perspective, among the industries with price increases, coal mining and washing rose by 20.6%, electrical machinery and equipment manufacturing increased by 5.1%, computer, communication, and other electronic equipment manufacturing grew by 3.3%, and ferrous metal smelting and rolling processing rose by 3.1%. These four sectors collectively contributed approximately 1.39 percentage points to the year-on-year PPI increase. Prices for non-ferrous metal mining and dressing, and non-ferrous metal smelting and rolling processing, rose by 25.5% and 23.4% respectively. However, the growth rates for oil and gas extraction, petroleum, coal and other fuel processing, and chemical raw materials and chemical products manufacturing—which increased by 16.8%, 16.7%, and 11.3% respectively—all moderated compared to May.
Policy Framework for Supply Security and Price Stability Continuously Improves
How should the price trend be viewed? Wen Bin, Chief Economist at China Minsheng Bank, commented that price levels maintained a moderate recovery trend in the first half of the year. "The PPI turned positive in March after 41 consecutive months of negative growth, rising 4.1% year-on-year in June. Although the CPI remains at a relatively low level, the core CPI has stabilized above 1%, and service price increases have consistently outpaced those of goods, indicating an optimization in the price structure," Wen Bin said.
Experts analyze that this round of price recovery exhibits characteristics of a supply-demand resonance. The recovery of domestic demand has driven mild increases on the consumption side, while policies promoting large-scale equipment renewal have precisely driven marginal improvements in demand for industrial raw materials. "In terms of driving factors, the low base from the same period last year contributed about 40% to the overall price increase, input factors contributed about 30%, and industrial structure optimization and upgrading contributed about 20%," Wen Bin explained.
Relevant officials from the National Bureau of Statistics have previously stated that China has ample supply of essential consumer goods, relatively smooth connections across production, transportation, and sales links, a continuously improving policy system for ensuring supply and stabilizing prices, and enhanced capabilities for price monitoring, early warning, and emergency regulation. These factors provide numerous favorable conditions for maintaining stable price levels.
Wen Bin added that policies to expand domestic demand are expected to be intensified in the second half of the year. Holidays such as the summer vacation and National Day are likely to boost prices in service consumption areas like tourism, accommodation, and catering. Although there is a time lag in the transmission of PPI recovery to the CPI, the stimulating effects of equipment renewal and trade-in policies on prices for durable consumer goods like home appliances and automobiles will gradually become apparent.
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