The latest data from the National Bureau of Statistics shows that in June, the Consumer Price Index (CPI) fell by 0.3% month-on-month and rose by 1.0% year-on-year. The Producer Price Index (PPI) for industrial products also fell by 0.3% month-on-month while increasing by 4.1% year-on-year. On average for the first half of the year, the national CPI increased by 1.0% compared to the same period last year. Analysts believe that consumer prices have continued the mild recovery trend seen since the fourth quarter of last year. Looking ahead to the second half of the year, the foundation for maintaining price stability remains unchanged, and consumer prices are expected to maintain a gentle upward trend.
Seasonal Decline in Food Prices
Dong Lijuan, Chief Statistician of the Department of Urban Surveys at the National Bureau of Statistics, explained that the year-on-year CPI increase of 1.0% in June was 0.2 percentage points lower than the previous month. The core CPI, which excludes food and energy prices, rose by 1.0% year-on-year, maintaining a moderate pace of increase. From a year-on-year perspective, Dong Lijuan analyzed that the slowdown in CPI growth was mainly influenced by a narrowing in the increase of industrial consumer goods prices. International input factors drove domestic industrial consumer goods prices up by 2.9%, a rate 1.0 percentage points lower than the previous month, contributing approximately 0.90 percentage points to the year-on-year CPI increase. The pull effect on CPI was about 0.28 percentage points less than the previous month. Service prices increased by 0.8%, the same rate as last month, contributing about 0.40 percentage points to the year-on-year CPI increase. Food prices fell by 1.6%, with the decline narrowing by 0.1 percentage points from the previous month.
On a month-on-month basis, the national CPI fell by 0.3%. Dong Lijuan highlighted three key factors contributing to this. First, there was a decline in energy and precious metal prices. Influenced by fluctuations in international market prices, the prices of domestic gold jewelry and gasoline saw expanded declines. 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 the previous month. Together, these impacted the month-on-month CPI decline by approximately 0.22 percentage points. Second, food prices experienced a seasonal decline. The abundant arrival of seasonal fruits and vegetables led to price decreases for fresh vegetables and fresh fruits by 1.0% and 2.0% respectively. Prices for pork and aquatic products fell by 0.8% and 0.6% respectively. However, egg prices rose by 7.0% due to a low inventory of laying hens and reduced egg production rates during high temperatures. Third, service prices shifted from a decline to stability. "Influenced by airlines reducing fuel surcharges and weaker off-season travel demand, prices for hotel accommodation, air tickets, and travel agency fees fell by 5.3%, 4.0%, and 0.7% respectively," Dong Lijuan said.
Industrial Upgrading Drives Demand in Certain Sectors
In June, the PPI fell by 0.3% month-on-month and rose by 4.1% year-on-year, with the year-on-year increase expanding by 0.2 percentage points from the previous month. From a month-on-month perspective, the characteristics of PPI movement can be analyzed across three dimensions. First, declining international crude oil prices affected 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%, with the declines expanding by 14.2 and 2.8 percentage points respectively compared to the previous month. Prices in the chemical raw materials and chemical products manufacturing and chemical fiber manufacturing sectors shifted from increase to decrease. Second, seasonal factors led to price divergence in some industries. Preparations for the summer peak in coal demand and increased demand for cooling products led to a 5.6% month-on-month increase in prices for coal mining and washing, and a 0.6% increase for household refrigeration appliance manufacturing. Conversely, prices for hydro, solar, and wind power generation fell by 9.1%, 2.5%, and 2.2% respectively. Third, accelerated industrial upgrading drove increased demand in specific sectors. "The expanding application scenarios of artificial intelligence, the widespread use of new raw materials and materials, and the continuous advancement of green transformation," Dong Lijuan analyzed, led to price increases. Manufacturing prices for virtual reality equipment rose by 8.4% month-on-month, wearable intelligent device manufacturing increased by 3.4%, industrial control computer and system manufacturing rose by 3.3%, and industrial robot manufacturing increased by 0.5%. Electronic specialty material manufacturing rose by 2.5%, carbon-based nanomaterial manufacturing increased by 1.9%, and waste resource comprehensive utilization rose by 0.4%.
From a year-on-year perspective, among the sectors 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 rose by 3.3%, and ferrous metal smelting and rolling processing increased by 3.1%. These four sectors together contributed approximately 1.39 percentage points to the year-on-year PPI increase. Non-ferrous metal mining and dressing, and non-ferrous metal smelting and rolling processing rose by 25.5% and 23.4% respectively. Petroleum and natural gas extraction, petroleum, coal and other fuel processing, and chemical raw materials and chemical products manufacturing increased by 16.8%, 16.7%, and 11.3% respectively, though the rates of increase for these sectors were lower than the previous month.
Outlook for Price Trends
How should the price trend be viewed? Wen Bin, Chief Economist at China Minsheng Bank, stated that in the first half of this year, price operations maintained a mild recovery trend. "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 low level, the core CPI has stabilized above 1% year-on-year, and service price increases have consistently outpaced goods prices, indicating an optimization of the price structure," Wen Bin said. Experts analyze that this round of price recovery exhibits characteristics of supply and demand resonance. Domestic demand repair has driven a mild increase on the consumer side, while large-scale equipment renewal policies 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 important livelihood commodities, relatively smooth connections across production, transportation, and sales links, a continuously improving policy system for ensuring supply and stabilizing prices, and enhanced price monitoring, early warning, and emergency regulation capabilities. These provide many favorable conditions for maintaining stable price operations. Wen Bin added that policies to expand domestic demand are expected to intensify in the second half of the year. Holidays such as the summer and National Day holidays will drive a recovery in service consumption prices for tourism, accommodation, and catering. Although there is a time lag in the transmission of PPI recovery to the CPI, the boosting effect of equipment renewal and trade-in policies on prices of durable consumer goods like home appliances and automobiles will gradually become apparent.
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