CITIC Securities: China's PPI year-on-year may have peaked

The impact of falling crude oil prices is gradually emerging. In June, the PPI month-on-month turned negative, but the year-on-year reading continued to rise to +4.1% under the effect of a low base. The PPI performance was basically in line with market expectations. We calculate that the petrochemical-related industries dragged the June PPI month-on-month down by 0.3 percentage points, but on the other hand, industries such as coal, electronics, and steel contributed some upward growth momentum, providing a hedge. In June, the CPI year-on-year fell to 1.0%, lower than the market consensus expectation. The core CPI fell for two consecutive months, and the decline in crude oil and gold prices may be the core drivers of the weak CPI in that month. Among the core CPI sub-items, the CPI performance of tourism, alcohol, and household appliances was weak, while the CPI performance of medical services and communication tools was strong. Looking ahead, the June PPI year-on-year may have peaked, and the subsequent PPI year-on-year may enter a moderate downward channel. Attention is drawn to the potential downside risk in the profit growth rate of industrial enterprises in the second half of the year. In terms of bond market strategy, after the data release, the yield on the 10-year active government bond rose rapidly by 0.4bp, possibly pricing in the continued rise in PPI year-on-year, but the adjustment range was limited overall. Looking ahead to the remaining period of the year, it is expected that before the core CPI shows an unexpected improvement, the bond market's pricing of inflation may be difficult to increase.

Event:

In June 2026, the national consumer price index (CPI) was +1.0% year-on-year (previous: +1.2%), and -0.3% month-on-month (previous: -0.1%); the national producer price index (PPI) for industrial products was +4.1% year-on-year (previous: +3.9%), and -0.3% month-on-month (previous: +0.5%).

The impact of falling crude oil prices is gradually emerging. The June PPI month-on-month turned negative, but the year-on-year reading continued to rise to +4.1% under the low base effect.

Crude oil prices fell significantly in June compared to May. The PPI month-on-month readings for the oil and gas extraction industry, chemical raw materials and chemical products manufacturing, petroleum, coal and other fuel processing, and chemical fiber manufacturing were -11.8%, -2.0%, -1.9%, and -0.8% respectively, dragging the PPI month-on-month down by 0.3 percentage points (the overall PPI month-on-month in June was -0.3%). However, due to the low base effect in the same period last year, the June PPI year-on-year reading still maintained an upward trend, with a +4.1% year-on-year reading flat with market expectations. In addition to industries related to the crude oil chain, the beverage and refined tea manufacturing, non-ferrous metal mining and dressing, non-metallic mineral products, agricultural and sideline food processing, and non-ferrous metal smelting and rolling processing industries also had varying degrees of negative pull on the PPI.

On the other hand, in June, industries represented by coal, electronics, and steel still had upward price momentum. Among them, the PPI month-on-month readings for coal mining and washing, computer, communication and other electronic equipment manufacturing, ferrous metal smelting and rolling processing, metal products, and rubber and plastic products were +5.6%, +0.7%, +0.4%, +0.4%, and +0.5% respectively, cumulatively contributing about 0.24 percentage points to the month-on-month increase in the PPI.

The June CPI year-on-year was lower than market expectations. The core CPI fell for two consecutive months, and the decline in crude oil and gold prices may be the core drivers of the weak CPI in that month.

The June CPI year-on-year reading was +1.0%, about 0.2 percentage points lower than the Wind consensus expectation and the previous value. According to data released by the National Bureau of Statistics, domestic gold jewelry and gasoline prices fell by 8.7% and 4.9% respectively in June, jointly dragging the CPI month-on-month down by about 0.22 percentage points, becoming the two core sub-items driving the CPI's unexpected decline in that month. The core CPI year-on-year growth rate has declined slightly for two consecutive months, from 1.2% in April to 1.1% in May and 1.0% in June. Breaking down the performance of core CPI sub-items, in June, the stronger sub-items among core CPI included medical services and communication tools, with CPI month-on-month readings 0.22 and 0.84 percentage points higher than the historical average for the same period, respectively; the weaker sub-items included tourism, alcohol, and household appliances, with CPI month-on-month readings about 0.06, 0.20, and 0.36 percentage points lower than the historical average for the same period, respectively.

Looking ahead, the June PPI year-on-year may have peaked, and the subsequent PPI year-on-year may enter a moderate downward channel. Attention is drawn to the potential downside risk in the profit growth rate of industrial enterprises in the second half of the year.

The impact of the current decline in crude oil prices may not yet be fully reflected. We expect that the subsequent oil price decline may still be further reflected in the July PPI month-on-month reading. Considering the "low first half, high second half" base characteristics of the 2025 PPI, it is expected that the subsequent PPI year-on-year may enter a moderate downward channel. In our special report "Weekly Macro Topic Review (Issue 188) — The Chinese Path of Imported Inflation" (2026-04-06), we analyzed in detail the impact of imported inflation on corporate profits and industry gross margins (price pass-through). From China's historical experience over the past two decades, this round of imported inflation is relatively comparable to 2021-2022, but in this cycle, China's domestic and external demand environment is weaker, and the PPI-CPI spread may remain at a high level for a period of time. Against the backdrop of sustained high international crude oil prices, the profit growth rate of industrial enterprises above a designated size may show a trend of "rising first, then falling." Based on this, we remind of the potential downside risk in the profit growth rate of industrial enterprises in the second half of the year.

Bond Market Strategy: PPI continues to rise while CPI remains stable; it is difficult to say there is incremental pricing in the bond market.

In July, funds turned easier, and the central bank increased its monetary support, but the bond market's performance was relatively sluggish; the June inflation readings saw PPI year-on-year rise while CPI year-on-year fell, which did not deviate from the logic of geopolitical risk pricing changes and slow recovery in domestic demand since the beginning of the year. On the market side, after the data release, the yield on the 10-year active government bond rose rapidly by 0.4bp, possibly pricing in the continued rise in PPI year-on-year, but the adjustment range was limited overall. Looking ahead to the remaining period of the year, it is expected that before the core CPI shows an unexpected improvement, the bond market's pricing of inflation may be difficult to increase.

Source: CITIC Securities Research

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