In June, CPI year-over-year is expected to continue a mild rise; the PPI year-over-year growth rate may expand further.

On July 5, reporters from Securities Daily interviewed multiple industry insiders to conduct a forward-looking analysis of the trend in June’s consumer price index (CPI) and producer price index (PPI). The interviewed insiders generally believe that since June, the prices of agricultural products overall have continued their downward trend. With domestic finished oil prices being cut twice, the CPI month-on-month rate may turn from positive to negative. Meanwhile, year-on-year, it will likely continue a modest upward trend. International oil prices have continued to fall; domestic industrial goods prices have overall declined. It is expected that the PPI month-on-month growth rate will turn negative, and the year-on-year increase will widen.

For the CPI, Wen Bin, chief economist at Minsheng Bank, told reporters from Securities Daily that he expects June’s month-on-month decline to be 0.3% and year-on-year increase to be 1.0%. Bian Quanshui, chief macro analyst at Western Securities, told reporters from Securities Daily that he expects June’s CPI month-on-month growth rate may be negative, with a year-on-year increase of 1.2%. A research report from China Venture Securities shows that it expects June’s CPI month-on-month to fall by about 0.1%, with the year-on-year figure staying roughly the same as May at around 1.2%.

Wen Bin’s specific analysis said that in June, the average value of the 200 index for agricultural product wholesale prices was 112.6 points, down 1.4% month-on-month. By category, fruit prices fell 3.3% month-on-month, because multiple summer fruits were released in concentrated batches and supply increased; pork prices fell 2.0% month-on-month, as higher temperatures weakened overall pork consumption, and trading in the terminal market was sluggish; due to seasonal transitions, vegetable prices rose 1.9% month-on-month; egg prices rose 11.7% month-on-month, resulting from a two-way mismatch between tight supply and concentrated demand release. At the same time, the risk premium on international oil prices continued to unwind, driving domestic finished oil prices to be cut twice in succession.

Regarding core CPI, Wen Bin said that in June, the service-sector business activity index was 50.4%, up 0.1 percentage points from May. The level of business sentiment rose 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 homes across 50 cities increased 0.08% month-on-month. However, clothing prices typically show seasonal declines, mainly driven by off-season clearance sales and e-commerce promotions.

For the PPI, Wen Bin expects June’s month-on-month increase to be 0.2% and year-on-year increase to be 4.5%. Bian Quanshui said that in June, the PPI month-on-month growth rate may turn negative, and the year-on-year growth rate may rise slightly from May to 4.1%. The China Venture Securities research report also shows that it expects June’s PPI month-on-month 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 major raw material 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 between expansion and contraction, the growth in raw material purchase prices narrowed. The differentiated pattern between upstream and downstream continued. The Ministry of Commerce’s weekly statistics showed that the monthly average month-on-month increase in the prices of production materials was 0.66%, below 1.4% in May, and this was the second consecutive month of decline. Based on the PMI indicators and high-frequency data, it is expected that June’s PPI month-on-month may rise slightly. However, because the year-ago base was low, the year-on-year increase may be higher than in May.

The China Venture Securities research report holds that the year-on-year PPI may be close to the highest level in the year. As oil prices fall quickly, they offset the favorable low-base effect from June to July. Even if midstream equipment manufacturing prices continue to provide support for PPI month-on-month, it will be difficult to offset the drag from the crude oil and petrochemical chain. Currently, 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 PPI month-on-month from the crude oil and petrochemical chain was about 0.8 percentage points, and most of that support may turn back into drag again in June to August. The midstream equipment manufacturing sector’s contribution to PPI month-on-month, on average over the first five months of this year, was about 0.15 percentage points, which is insufficient to offset the price declines in the crude oil and petrochemical chain.

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

Keywords:

                                                            CPI
                                                            PPI