The policy of boosting domestic demand is expected to intensify, with CPI remaining unchanged year-on-year and PPI falling in price | magnitude | domestic demand
Affected by factors such as the decline in pork and industrial product prices, the CPI entered a "zero growth era" in June. However, due to the continued decline in prices of major commodities such as oil and coal, as well as the high year-on-year comparison base, PPI decreased both month on month and year on year.
According to data released by the National Bureau of Statistics on July 10th, in June, the year-on-year increase in CPI from 0.2% last month turned to flat, with a month on month decrease of 0.2%. The PPI decreased by 5.4% year-on-year, an increase of 0.8 percentage points from the previous month, and the lowest value since January 2016; The month on month decrease was 0.8%, and the decrease narrowed by 0.1 percentage points compared to the previous month.
Overall, in the first half of this year, the CPI increased by an average of 0.7% from January to June, and the PPI decreased by an average of 3.1% from January to June. Prices are generally at a relatively low level. In June, CPI and PPI continued to decline, reflecting the overall weak domestic and international demand. However, as the base decreases during the same period, the market expects the PPI to rebound after hitting a bottom in the near future.
Wang Jun, Chief Economist of Huatai Asset Management, told First Financial reporters that insufficient demand remains the underlying reason for the sustained decline in CPI. In the second half of the year, more precise and effective policies need to be introduced to boost domestic demand. It is possible to consider appropriately canceling or gradually loosening some restrictive measures on the demand side.
Core CPI continues to decline
From a year-on-year perspective, the CPI has remained stable from a 0.2% increase last month. Among them, food prices increased by 2.3%, an increase of 1.3 percentage points from the previous month. In the food industry, prices of fresh vegetables, potatoes, fresh fruits, and poultry have increased significantly, ranging from 4.3% to 10.8%; The price of pork decreased by 7.2%, an increase of 4.0 percentage points from the previous month. Non food prices have decreased by 0.6% from last month's level.
In the non food sector, service prices increased by 0.7% year-on-year, with a decrease of 0.2 percentage points; The price of industrial consumer goods decreased by 2.7%, with a decrease of 1.0 percentage point. Among them, energy prices decreased by 9.3%, and the price of industrial consumer goods after deducting energy decreased by 0.5%, all of which showed an expansion in the decline.
Pang Ming, Chief Economist of JLL Greater China, analyzed First Financial and Economics that the year-on-year CPI in June changed from an increase to a plateau, mainly due to the widening decline in pig prices caused by the off-season of consumption and oversupply, the decline in service price increases, and the impact of PPI transmission on the decline in industrial consumer goods prices. Considering the rapid rise in pork prices last summer, the trend of food prices and CPI in the third quarter may still be under pressure due to the drag of pork prices.
Wen Bin, Chief Economist of Minsheng Bank, believes that the CPI in June remained unchanged year-on-year, slightly lower than market expectations, and is at the critical position of inflation and deflation. Although abnormal weather has provided some support for the prices of fresh vegetables, the month on month decline in food prices is slightly smaller than the seasonal impact. However, core inflation is still weaker than expected, especially weak demand for durable consumer goods, reflecting that consumer confidence among residents still needs to be improved. In addition, weaker than expected energy prices are also one reason for the weakening of CPI. Although future hot weather may provide some support for prices, the possibility of a year-on-year decline in short-term CPI cannot be ruled out.
Pork prices are an important drag on the slowdown of CPI. The latest data released by the Ministry of Agriculture and Rural Affairs shows that the average wholesale price of pork in China on July 7th was 18.83 yuan/kg. The latest data released by the National Development and Reform Commission shows that the average retail price of pork in 36 cities is 14.95 yuan/jin.
Recently, pig prices have continued to operate at a low level. According to the monitoring of the National Development and Reform Commission, during the week of June 26-30, the national average pig to grain ratio was below 5:1, entering the first level warning range for excessive decline determined by the "Improving the Government's Pork Reserve Adjustment Mechanism and Doing a Good Job in Ensuring Supply and Stabilizing Prices in the Pork Market Plan".
In order to promote the price of live pigs to return to a reasonable range as soon as possible, the National Development and Reform Commission has stated that it will work with relevant parties to launch the second batch of central pork reserve collection and storage work within the year, and guide various regions to synchronize collection and storage. The country attaches great importance to the price changes in the pig market and will continue to strengthen pig production capacity and price regulation to promote the stable operation of the pig market.
In June, the core CPI, excluding food and energy prices, increased by 0.4% year-on-year, a decrease of 0.2 percentage points from the previous month. Pang Ming told reporters from First Financial that this reflects that the strengthening of consumer demand, especially service consumption, is still difficult to fully offset the weak recovery trend of industrial and commodity consumption. The endogenous driving force of the economy and effective social demand still need to be nurtured. Especially considering the increasingly complex and severe external environment, it is necessary to fully estimate the uncertainty that economic growth may face in the third and fourth quarters, and attach importance to and enhance the effects of countercyclical policies on stabilizing confidence, growth, and expanding domestic demand.
Regarding the trend of CPI in the next stage, Wang Qing, Chief Macro Analyst of Dongfang Jincheng, stated that the year-on-year CPI in the third quarter may briefly enter a negative growth range, but the risk of deflation is controllable. The year-on-year decline in pork prices in the third quarter is likely to significantly expand, which will have a significant impact on the overall CPI trend. Among them, the year-on-year CPI in July may enter a negative range, estimated to be around -0.3%. But this does not mean that the CPI will face significant deflationary risks in the second half of the year. It is expected that consumer promotion policies will be further strengthened in the third quarter, and the recovery momentum of household consumption will tend to accelerate. The core CPI will remain stable and slightly increase year-on-year; Entering the fourth quarter, as the high base effect recedes, the overall year-on-year CPI will also steadily return to positive growth. By the end of the year, the year-on-year CPI is expected to reach a normal level of around 2.0%.
The probability of this round of PPI hitting the bottom is high
In terms of PPI, in June, due to the continued decline in prices of major commodities such as oil and coal, as well as the high year-on-year comparison base, PPI decreased both month on month and year on year.
From a year-on-year perspective, the PPI decreased by 5.4%, an increase of 0.8 percentage points compared to the previous month. Among them, the price of means of production decreased by 6.8%, with a 0.9 percentage point increase in decline; The price of living materials decreased by 0.5%, with a decrease of 0.4 percentage points.
Pang Ming's analysis shows that the year-on-year decline in PPI is the largest in seven and a half years. In addition to the continued decline in commodity prices and the sustained downward effect of high base effects, it also reflects the reality that the momentum of the real estate and construction chains, as well as the intensity of industrial production, are still weak. However, the year-on-year decline in PPI is likely to have bottomed out, and it is expected that the year-on-year decline in PPI will gradually narrow in the second half of the year.
Wen Bin believes that the purchasing price index of industrial producers in June decreased by 6.5% year-on-year, with a decrease greater than the factory price by 1.1 percentage points, and the scissor gap has widened for three consecutive months, reflecting that downward pressure on prices is still upstream, which is conducive to improving the profitability of industrial enterprises in the middle and lower reaches. Overall, the current PPI is showing a continued downward trend, with prices showing characteristics such as upstream being weaker than downstream, production materials being weaker than daily necessities, and durable goods being weaker than non durable goods. Meanwhile, due to the high base last year, the month on month decline narrowed slightly, but the year-on-year decline widened significantly. However, at present, as the base effect began to shift last year, the future decline in PPI is expected to narrow, and this round of PPI is likely to have bottomed out.
Wu Chaoming, Vice President of the Institute of Finance and Information Technology, analyzed that the PPI will gradually rebound after bottoming out in June this year. However, domestic demand belongs to a restorative growth, and insufficient demand remains a prominent contradiction. In addition, the negative tailgating factor throughout the year has dragged down PPI. Therefore, the probability of negative PPI growth in the second half of the year in China is relatively high.
The National Bureau of Statistics stated that due to multiple factors, the overall ex factory prices of industrial producers have declined this year. The widening decline in PPI is mainly due to the combined effects of multiple international and domestic factors, as well as the impact of a relatively high base in the same period last year. The widening decline in PPI increases the pressure on business operations, which is not conducive to improving the efficiency of enterprises. In the next stage, efforts should be made to restore and expand demand, accelerate the construction of a modern industrial system, promote a higher level of dynamic balance between production and demand, drive industrial product prices back to a reasonable level, and promote stable and healthy industrial development.
The policy of expanding domestic demand is expected to intensify
The inflation data reflects the weak endogenous driving force and insufficient demand in the current economy, and the key to the sustained recovery and improvement of the economy lies in the recovery and expansion of demand.
Policy measures are currently under consideration. The executive meeting of the State Council on June 16th focused on four aspects: increasing macroeconomic policy regulation, focusing on expanding effective demand, strengthening and optimizing the real economy, and preventing and resolving risks in key areas. A series of policy measures were proposed. On July 6th, Premier Li Qiang of the State Council presided over an expert symposium on the economic situation, stating that a number of targeted, combined, and collaborative policy measures should be timely introduced and implemented around stabilizing growth, employment, and risk prevention.
The National Development and Reform Commission stated that it will promptly formulate and introduce policies to restore and expand consumption, continuously improve the consumption environment, and unleash the potential for service consumption. The Ministry of Commerce also stated that it is promoting a series of policy measures to support the recovery and expansion of consumption. At the same time, based on the positioning of business functions, targeted supporting measures will be introduced to promote high-quality development of the automotive, home furnishings, brand consumption, and catering industries, enhance the combination, coordination, and effectiveness of policies, and ensure their implementation.
Yang Weimin, Vice Chairman of the China Center for International Economic Exchange, recently publicly stated that the recovery of household consumption is the key to the overall improvement of economic performance this year, and the expansion of household consumption is the key to the long-term improvement of China's economy. Insufficient consumption by residents includes slower growth of household income than economic growth, lower and gradually decreasing proportion of household income to GDP; The consumption of real estate ranks first among residents, and the crowding out effect generated by the increase in real estate related expenses by residents; The income level and per capita consumption level of rural residents are low.
"We must continue to build a manufacturing and production country, as well as accelerate the construction of a consumption and living country." Yang Weimin proposed that China's development has reached a stage of transition from pursuing a production country to pursuing a living country, and from targeting a manufacturing country to a consumption country. To this end, we need to promote the reform of the income distribution system, increase residents' income, and enhance their consumption capacity; We need to gradually change the restraining policies on housing, cars, and some high-end consumption, and minimize intervention and restrictions on resident consumption as much as possible; We need to reform the identity card system and housing system, and promote the urbanization of migrant workers.
Wu Chaoming also believes that although the reasons for the insufficient total demand are diverse and complex, the most prominent reason for the current performance is the lack of confidence and expectation in private sectors such as residents and private enterprises, as well as an increase in cautious psychology and behavior such as wait-and-see, which constitute the micro basis for the insufficient macro demand. To stabilize and expand total demand, it is undoubtedly necessary to start by changing or reversing the behavior of micro entities, and to boost confidence and improve expectations through systematic rather than individual policies.
