What is the trend in the next stage?, PPI continues to bottom out, with a slight year-on-year rebound in May. On a month on month basis, prices have increased compared to the same period last year
On June 9th, the National Bureau of Statistics released data showing that in May, the CPI decreased by 0.2% month on month and increased by 0.2% year-on-year; PPI decreased by 0.9% month on month and 4.6% year-on-year.
CPI slightly rebounded year-on-year
In May, consumer demand continued to recover, and the overall market operation remained stable. The CPI decreased month on month, and the year-on-year increase slightly expanded.
From a year-on-year perspective, CPI increased by 0.2%, an increase of 0.1 percentage points compared to the previous month. Among them, food prices increased by 1.0%, an increase of 0.6 percentage points compared to the previous month, affecting the CPI increase by about 0.19 percentage points. In terms of food, the prices of poultry, edible oil, and fresh fruits have increased by 5.6%, 3.6%, and 3.4% respectively, with all increases falling back; The price of pork has decreased by 3.2% from a 4.0% increase in the previous month; The price of fresh vegetables has decreased by 1.7%, which is 11.8 percentage points narrower than the previous month; The prices of grain and aquatic products are basically stable. Non food prices have remained stable from a 0.1% increase last month.
Wang Qing, Chief Macro Analyst of Dongfang Jincheng, stated that the year-on-year rebound in CPI in May was mainly due to two reasons: firstly, the year-on-year decline in vegetable prices in May significantly narrowed. Driven by an increase in supply, vegetable prices declined in the current month. However, after the peak of the epidemic in April last year, vegetable prices fell significantly in May, and the low base drove the year-on-year decline in vegetable prices in May this year to narrow by 11.8 percentage points. Due to the high weight of vegetable prices in CPI, it is estimated that this alone will drive up CPI growth by about 0.29 percentage points. This offset the impact of the year-on-year shift in pork prices from positive to negative for the month, driving the year-on-year increase in food CPI by 0.6 percentage points to 1.0%, which is the main reason for the year-on-year increase in May CPI.
According to Ying Xiwen, a senior researcher at the Research Institute of Minsheng Bank, the 0.2% year-on-year increase in CPI in May is in line with market expectations. From the perspective of food prices, the weak cycle of pork and abundant seasonal supply have driven food prices back down, with pork decreasing by 2% month on month, narrowing the decline compared to the previous month. However, the current reduction of pork production capacity is relatively slow, and in the short term, it is still in the bottom stage of the cycle. Other foods, represented by vegetables, have mostly experienced a month on month decline due to seasonal abundant supply factors. However, the overall decline in food products is better than the average level of the historical off-season. Therefore, a 1% year-on-year increase in food prices provides certain support for the year-on-year growth of CPI.
The analyst further pointed out that in terms of energy, it is mainly influenced by international price transmission and remains low, but the month on month decline has also narrowed. In terms of core CPI, the fading of holiday factors has led to a decline in prices of service goods represented by tourism. In addition, durable consumer goods such as homes, home appliances, cars, and mobile phones are also relatively weak. However, according to calculations, prices of household daily consumer goods and other service industries other than tourism have remained stable, providing support for CPI. Overall, the current abundant supply and stable but weak demand are still the main characteristics, and it is necessary for policies to continue to maintain efforts to promote domestic demand.
PPI deflation intensifies
In May, international commodity prices overall declined, and the demand for industrial products in domestic and foreign markets was generally weak. In addition, with a high year-on-year comparison base, PPI continued to decline both month on month and year on year.
From a year-on-year perspective, the PPI decreased by 4.6%, an increase of 1.0 percentage points compared to the previous month. In the main industries, the prices of oil and gas extraction decreased by 19.1%, with a decrease of 2.8 percentage points; The prices of black metal smelting and rolling processing industries have decreased by 16.8%, with a 3.2 percentage point increase in decline; The prices of petroleum, coal, and other fuel processing industries have decreased by 15.1%, with a decrease of 3.7 percentage points; The prices of coal mining and washing industries have decreased by 13.1%, with a decrease of 3.8 percentage points.
Wang Qing stated that the intensification of PPI deflation in May was partly due to the increasing downward pressure on overseas economies, which made it difficult for international priced commodities such as crude oil to reverse the pressure. On the other hand, the recovery of domestic terminal consumption was weak, real estate investment remained sluggish, and production capacity such as steel and coal continued to be released. In the context of loose supply, the prices of these domestically dominant commodities accelerated their decline in May.
Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, said that the year-on-year decline of 4.6% in PPI in May was mainly due to the fall in the prices of energy, raw materials and other commodities, which reduced the purchase and processing costs of enterprises. In addition, the impact of the high base last year was obvious. In addition, terminal consumption was weak, especially durable goods, and some downstream enterprises cut prices to remove inventory. From a structural perspective, the prices of upstream raw materials and some midstream processing have significantly decreased, which helps alleviate the production cost pressure on some midstream and downstream manufacturing industries. Thanks to the global decline in commodity prices, the effect of domestic policies to ensure stable supply has been evident.
What is the trend in the next stage?
Wang Qing predicts that the CPI will slightly rebound to around 0.7% in June and still remain in a low inflation state below 1.0%. However, in the process of economic recovery, there is not much risk of CPI falling into deflation, and there is a upward trend in the year-on-year center of CPI in the second half of the year. In terms of PPI, due to the increasing downward pressure on the global economy and weakened demand expectations, international commodity prices such as crude oil, coal, and non-ferrous metals are expected to continue to operate weakly. Coupled with the high base impact of the same period last year, it is expected that the year-on-year decline in PPI in June will slightly expand to around -4.8%. In the second half of the year, as the high base effect weakens, domestic economic recovery drives up demand for upstream raw materials and industrial products, and PPI is expected to turn positive year-on-year.
Zhou Maohua believes that from a trend perspective, it is expected that prices will remain low in the coming months, but the central government will gradually rise afterwards, and prices will remain moderate and controllable throughout the year. Industrial production prices remain low, but industrial product prices are expected to moderately rebound in the second half of the year. On the one hand, the slowdown of the global economy and the tightening policies in Europe and America have not yet ended the drag on commodities; At present, the pace of domestic demand recovery is relatively moderate; But domestic demand is showing a recovery trend, with consumption and domestic demand momentum gradually increasing; In addition, domestic industrial enterprises have gradually shifted to actively replenishing inventory, weakening the base effect and driving the year-on-year bottoming out and rebound of PPI.
Fu Linghui, spokesperson for the National Bureau of Statistics, previously stated that from the next stage, the international import impact will continue, domestic market demand is still recovering, and some industrial product prices will continue to decline in the short term. However, with the recovery of the domestic economy and the recovery of market demand, the overall judgment is that PPI is expected to gradually recover in the second half of the year.
