A customer looks at fruits at a supermarket in Guizhou Province, China, July 10, 2024. /CFP
Editor's note: Liu Chunsheng, a special commentator on current affairs for CGTN, is an associate professor at the Beijing-based Central University of Finance and Economics. The article reflects the author's opinion and not necessarily the views of CGTN.
Data released by China's National Bureau of Statistics indicates a complex trend in both consumer price index (CPI) and producer price index (PPI) in the country. The country's CPI in June rose by 0.2 percent year on year, while the decline in the PPI continued to narrow, reflecting not only the robust operation of the Chinese economy in a complex environment but also hinting at potential future development paths.
Food prices have always been a significant factor influencing the country's CPI. In June, food prices dropped by 2.1 percent year on year, primarily due to the seasonal influx of fresh fruits and vegetables, leading to a substantial price decrease and exerting a notable downward pressure on the CPI. However, pork prices surged by 18.1 percent, highlighting a bright spot in food prices and exerting a positive push on the CPI. This polarized price trend reflects seasonal characteristics in agricultural production and reveals the tense supply-demand relationship in the pork market.
Compared to the fluctuations in food prices, non-food prices have maintained a relatively stable growth trend. Non-food prices increased by 0.8 percent in June, with service prices rising by 0.7 percent, indicating a robust recovery in service consumption. Increased demand for activities like summer tourism and entertainment has driven significant price hikes in airfares, tourism and hotel accommodation. The upward trend in non-food prices has provided strong support for the positive growth of the CPI.
Robotic arms doing welding work along an intelligent production line in Yangzhou, Jiangsu Province, China, July 4, 2024. /CFP
China's core CPI, which excludes food and energy prices from the CPI, rose by 0.6 percent year on year, maintaining a moderate upward trend similar to the previous month. This suggests that despite fluctuations in food and energy prices, the intrinsic growth momentum of the Chinese economy remains robust, with consumer demand showing stable growth.
The fluctuation of the country's PPI is significantly influenced by international commodity prices. In June, due to fluctuations in international commodity prices and factors such as insufficient demand in domestic industrial sectors, the national PPI fell by 0.2 percent month on month, with the year-on-year decline continuing to narrow. The PPI changes also reflect adjustments in domestic industrial structure. In recent years, the Chinese economy has been transitioning from traditional manufacturing to high-end manufacturing, leading to significant price declines in certain traditional sectors like coal mining and washing, non-metallic mineral products (mainly cement) and ferrous metal smelting and rolling industry (mainly steel). The price drops in these industries have significantly dragged down the PPI, indicating an inevitable outcome of China's industrial restructuring and transformation.
Besides, insufficiency in demand was also a significant factor contributing to the decline of the PPI. Particularly, some downstream industries have been impacted by weak market demand, resulting in continued price decreases. Seasonal factors have also influenced the PPI.
Looking ahead, the CPI is expected to gradually rise back into a reasonable range, primarily due to the sustained recovery and improvement of the Chinese economy, steady expansion of market demand and policy support. With the gradual implementation of counter-cyclical policy measures, domestic demand is expected to continue to rise, thereby pushing core inflation back towards historical averages.
New cars ready for shipment and export at Yantai Port, Shandong Province, China, July 10, 2024. /CFP
As for the PPI, the rate of decline is expected to continue narrowing and exhibit a stable yet upward trend. On one end, with the gradual rise in international commodity prices and the ongoing optimization and upgrading of the domestic industrial structure, prices in certain upstream industries are likely to remain on a steady growth trajectory. On the other end, as domestic demand gradually picks up and with continuous policy support, downstream processing industries are anticipated to gradually recover from their difficulties and witness price increases.
While the PPI is currently in negative growth territory, signs of stabilization and recovery are emerging. As policies aimed at encouraging private businesses, boosting consumption and stabilizing the real estate sector are increasingly implemented, domestic demand is expected to gradually strengthen. Additionally, the slowing pace of inventory clearance for enterprises might lead to an inventory replenishment phase in the latter half of the year, further supporting the PPI.
In the long term, the PPI is expected to gradually emerge from the negative growth territory. According to historical data and predictions based on oil price trends, the PPI performance is anticipated to turn positive in the latter half of 2024. However, it should be noted that the pace of this recovery may still be slow, necessitating further intensification of policy measures.
As important indicators of price levels, both the CPI and PPI exhibit a certain degree of linkage between them. Currently, the fluctuations in CPI are mainly influenced by food prices, while fluctuations in the PPI are more affected by international commodity prices and domestic market demand.