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

On July 5, several industry insiders interviewed by Securities Daily provided forward-looking analysis on the trends of the June resident consumer price index (CPI) and the industrial producer factory-gate price index (PPI).

Industry insiders generally believe that since June, the prices of agricultural products have overall continued their downward trend, and domestic refined oil prices have been cut twice. Therefore, the CPI month-on-month (m/m) rate may turn from positive to negative; year-on-year (y/y), it will likely continue a mild upward trend. International oil prices have continued their downward trend, and domestic industrial goods prices have overall fallen. It is expected that the PPI m/m growth rate will turn negative, and the y/y increase will be larger.

Regarding CPI, Wen Bin, chief economist at Minsheng Bank, told Securities Daily that he expects June m/m to fall 0.3% and y/y to rise 1.0%. Bian Quanshui, chief macro analyst at Western Securities, told Securities Daily he expects June CPI m/m growth may be negative, with y/y rising 1.2%. A research report by China Renaissance Securities shows that June CPI m/m is expected to fall by about 0.1%, with y/y staying roughly flat at 1.2% (the same as May).

Wen Bin’s analysis specifically stated that in June, the average of the 200 index for agricultural wholesale prices was 112.6 points, down 1.4% m/m. By subcategory, fruit prices fell 3.3% m/m due to multiple summer fruits entering peak season at the same time and increased supply. Pork prices fell 2.0% m/m due to higher temperatures leading to overall weaker pork consumption and subdued成交 (terminal market) activity. Due to seasonal transitions, vegetable prices rose 1.9% m/m. Egg prices rose 11.7% m/m, resulting from a double-sided mismatch: both relatively tight supply and concentrated demand release. At the same time, the risk premium in international oil prices continued to unwind, leading to two consecutive cuts in domestic refined oil prices.

For core CPI, Wen Bin said that in June, the service sector business activity index was 50.4%, up 0.1 percentage points from May, indicating improved business sentiment and providing support for related service prices. Driven by the graduation season in June, short-term rental demand was concentrated and released; the average rent for residential properties across 50 cities rose 0.08% m/m. However, clothing prices normally show seasonal declines, mainly driven by off-season clearance sales and e-commerce promotions.

For PPI, Wen Bin expects June m/m to rise 0.2% and y/y to rise 4.5%. Bian Quanshui said the June PPI m/m growth rate may turn negative, and the y/y growth rate may edge up from May to 4.1%. A research report by China Renaissance Securities also shows an expectation that June PPI m/m will be about -0.2%, with y/y rising from 3.9% to around 4.1%.

Wen Bin said that in June, the main raw material purchase price index and the factory-gate price index were 54.2% and 48.2%, respectively, down 6.3 percentage points and 3.7 percentage points from May. Factory-gate prices have fallen below the break-even (boom-bust) line; raw material purchase price inflation has narrowed. The diverging pattern between upstream and downstream continues. The Ministry of Commerce’s weekly data show that the monthly average m/m change in prices of production materials rose 0.66%, lower than May’s 1.4%, marking a second consecutive month of decline. Based on the PMI indicators and high-frequency data, it is expected that June PPI m/m may rise slightly; however, because the year-ago base is relatively low, the y/y increase may be higher than in May.

China Renaissance Securities’ research report believes that PPI y/y may be close to the intra-year high point. Currently, the rapid fall in oil prices offsets the favorable low-base effect for June through July. Even if the midstream equipment manufacturing prices continue to support PPI m/m, it is difficult to offset the drag from the crude oil and petrochemical chain. The current Brent crude spot price has basically fallen back to the level before international geopolitical conflict. From March to May, the crude oil and petrochemical chain’s average positive pull on PPI m/m was about 0.8 percentage points, and most of that support may turn into drag again in June through August. The midstream equipment manufacturing sector’s contribution to PPI m/m, over the first five months of this year, has averaged about 0.15 percentage points, making it unable to offset the price declines along the crude oil and petrochemical chain.

【Author: Meng Ke】 (Edited by: Wen Jing)

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                                                            CPI
                                                            PPI