June CPI year-over-year is expected to continue a mild upward trend; the PPI year-over-year growth rate may widen.

On July 5, multiple industry insiders interviewed by Securities Daily provided forward-looking analysis of the trends in the June consumer price index (CPI) and producer price index (PPI).

Interviewed insiders generally believe that since June, agricultural product prices have continued to fall overall. With domestic finished petroleum product prices being cut twice, the CPI month-on-month figure may turn from positive to negative. Year-on-year, it is expected to continue its moderate upward trend. International oil prices have continued to decline. Domestic industrial goods prices have fallen overall, and it is expected that the PPI month-on-month growth rate will turn negative; the year-on-year increase is expected to widen.

Regarding the CPI, Wen Bin, chief economist at Minsheng Bank, told Securities Daily that he expects the CPI to fall 0.3% month-on-month in June and rise 1.0% year-on-year. Bian Quanshui, chief macro analyst at Western Securities, told Securities Daily that he expects the CPI month-on-month growth rate in June could be negative, with a year-on-year rise of 1.2%. A research report from China Venture Securities shows that the CPI month-on-month in June is expected to fall by about 0.1%, with the year-on-year figure staying roughly the same as May at about 1.2%.

Wen Bin’s specific analysis said that in June, the average of the wholesale prices of agricultural products (200 Index) was 112.6 points, down 1.4% month-on-month. By component, fruit prices fell 3.3% month-on-month due to multiple summer fruits being concentrated in the market and increased supply; pork prices fell 2.0% month-on-month, as higher temperatures weakened overall pork consumption, and trading in terminal markets was sluggish. Due to the seasonal shift, vegetable prices rose 1.9% month-on-month. Egg prices rose 11.7% month-on-month, resulting from a two-way mismatch driven by tight supply and concentrated demand release. Meanwhile, the risk premium on international oil prices continued to unwind, leading to two consecutive cuts in domestic finished petroleum product prices.

For core CPI, Wen Bin said that in June the services business activity index was 50.4%, up 0.1 percentage points from May. The level of business conditions improved somewhat, providing support for related service prices. Driven by the graduation season in June, short-term rental demand was released in a concentrated manner, and the average rent for residential properties across 50 cities rose 0.08% month-on-month. However, clothing prices typically decline seasonally, mainly driven by end-of-season clearances and e-commerce promotions.

For the PPI, Wen Bin expects that in June it will rise 0.2% month-on-month and increase 4.5% year-on-year. Bian Quanshui said the PPI month-on-month growth rate in June may turn negative; the year-on-year growth rate may have edged up slightly from May to 4.1%. A research report from China Venture Securities also shows that the PPI month-on-month in June is expected to be about -0.2%, with the year-on-year figure rising from 3.9% to around 4.1%.

Wen Bin said that in June, the main raw materials purchase price index and the ex-factory price index were 54.2% and 48.2%, respectively, down 6.3 percentage points and 3.7 percentage points from May. With ex-factory prices falling below the break-even line, the growth rate of raw materials purchase prices narrowed, and the differentiation pattern between upstream and downstream continued. The Ministry of Commerce’s weekly statistics showed that the monthly average month-on-month increase in prices of means of production was 0.66%, lower than the 1.4% in May, marking a second consecutive month of decline. Based on the PMI indicators and high-frequency data, it is expected that the PPI month-on-month in June may rise slightly; however, because the year-ago base was relatively low, the year-on-year increase may be higher than in May.

A research report from China Venture Securities believes that the PPI year-on-year may be close to the highest point within the year. Currently, rapid declines in oil prices have offset the favorable low-base effect from June to July. Even if the equipment manufacturing prices in the midstream continue to provide support for the PPI month-on-month, it will be difficult to offset the drag from the crude oil and petrochemical chain. At present, the spot price of Brent crude oil has basically fallen back to the level before international geopolitical conflicts. From March to May, the average contribution to the PPI month-on-month from the crude-oil-and-petrochemical chain was about 0.8 percentage points; most of that support may turn back into drag again from June to August. The midstream equipment manufacturing industry’s contribution to the PPI month-on-month, in the first five months this year on average, was about 0.15 percentage points, which is insufficient to offset the decline in prices across the crude oil and petrochemical chain.

[Author: Meng Ke] (Editor: Wen Jing)

Keywords:

                                                            CPI
                                                            PPI