Analysis suggests that if the real estate sector can achieve policy goals and stabilize in the second half of the year, both CPI and PPI are expected to perform better.

On September 9th, the National Bureau of Statistics released the CPI (Consumer Price Index) and PPI (Producer Price Index) data for August nationwide.

The data shows that due to seasonal increases in food prices and other factors, the CPI continued to rise in August, increasing by 0.6% year-on-year and 0.4% month-on-month.

Affected by insufficient market demand and the downward trend of some international commodity prices, the PPI performance in August was worse than the previous month, with a month-on-month decrease of 0.7% and a year-on-year decrease of 1.8%.

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Pan Helin, a member of the Expert Committee of the Ministry of Industry and Information Technology's Information and Communication Economy, told Caijing that the main driver of the August CPI increase was the significant rise in food prices such as vegetables and pork.

Among them, the price of fresh vegetables increased by as much as 21.8% year-on-year, and the price of pork increased by 16.1% year-on-year.

Pan Helin believes that the structure of the August CPI increase is not ideal.

"Food is a necessity, and generally, CPI increases should avoid the rise in necessities like food."

"Currently, the consumption status of residents is that they save on expenses other than food."

Zheng Lei, Chief Economist at Samoyed Cloud, told Caijing that overall, the current CPI is still in a low-level recovery trend.

In August, food and other necessities' prices increased due to weather and other factors, but the prices of eggs and transportation and communication actually decreased, reflecting a relatively weak demand trend.

August is the summer vacation period, and the prices of transportation and communication should not have decreased.

The data's decline indicates that residents' willingness to travel and consume during the summer vacation period is not high.

In addition, the continued decline of PPI in August also indicates that production is still shrinking, and domestic demand recovery remains weak.

Pang Ming, Chief Economist of Jones Lang LaSalle in Greater China, also said that the PPI performance was worse than the previous month and expectations, indicating that under the pressure of insufficient domestic demand, real estate drag, delayed progress in the formation of physical work volume of special bonds, and the decline in international commodity prices, the downward pressure on PPI remains significant.

I.

Food price increases are the core factor driving CPI up.

The increase in August CPI was mainly driven by a significant rise in food prices.

Among them, the rise in pork prices and the impact of weather on vegetable supply jointly pushed up the food prices in August.

Looking at the year-on-year comparison, in August, the price of food and tobacco and alcohol increased by 2.1%, affecting the CPI increase by about 0.58 percentage points.

Among the food items, the price of fresh vegetables increased by 21.8%, affecting the CPI increase by about 0.44 percentage points; the price of fresh fruits increased by 4.1%, affecting the CPI increase by about 0.08 percentage points.

It is worth noting that the price of eggs decreased by 3.5%, affecting the CPI decrease by about 0.02 percentage points.

Looking at the month-on-month comparison, in August, the price of food and tobacco and alcohol increased by 2.2%, affecting the CPI increase by about 0.61 percentage points.

Among the food items, the price of fresh vegetables increased by 18.1%, affecting the CPI increase by about 0.38 percentage points; the price of fresh fruits increased by 3.8%, affecting the CPI increase by about 0.08 percentage points.

Pork prices continued to rise due to the previous capacity reduction.

Looking at the year-on-year comparison, in August, the price of livestock meat increased by 3.8%, affecting the CPI increase by about 0.12 percentage points, among which the price of pork increased by 16.1%, affecting the CPI increase by about 0.21 percentage points; the price of aquatic products increased by 1.7%, affecting the CPI increase by about 0.03 percentage points.

Looking at the month-on-month comparison, in August, the price of livestock meat increased by 3.6%, affecting the CPI increase by about 0.11 percentage points, among which the price of pork increased by 7.3%, affecting the CPI increase by about 0.10 percentage points; the price of eggs increased by 2.8%, affecting the CPI increase by about 0.02 percentage points.

The data shows that in the last four months, pork prices have continued to rise, with month-on-month increases of 1.1%, 11.4%, 2.0%, and 7.3% respectively.

Recently, many securities companies have predicted that pork prices may continue to rise.

A research report released by Kaiyuan Securities suggests that pig prices will operate at a high level in the second half of 2024, and the pig farming industry will gradually enter a high-profit realization phase.

On September 5th, CITIC Securities released a research report believing that the supply and demand gap for pigs in the second half of 2024 is still large, and pig prices may continue to exceed expectations, while cautious capacity replenishment may extend the duration of the cyclical prosperity.

Looking at the year-on-year comparison, the prices of the other seven major categories increased in five, remained flat in one, and decreased in one.

Among them, the prices of other goods and services, and clothing increased by 3.4% and 1.4% respectively, the prices of education, culture, and entertainment, and medical care both increased by 1.3%, the price of living goods and services increased by 0.2%; the price of housing remained flat; the price of transportation and communication decreased by 2.7%.

Looking at the month-on-month comparison, the prices of the other seven major categories remained flat in two and decreased in five.

Among them, the prices of housing and medical care remained flat; the prices of transportation and communication, living goods and services, and other goods and services decreased by 1.1%, 0.7%, and 0.6% respectively, the prices of clothing and education, culture, and entertainment decreased by 0.2% and 0.1% respectively.

Zheng Lei believes that during the summer vacation period in August, the decrease in transportation and communication prices reflects that residents' willingness to travel and consume may have decreased.

In addition to the expenditure on necessities such as food, residents are currently saving on consumption in other aspects, and residents' consumption motivation and confidence remain weak.

Pan Helin, Zheng Lei, and many other experts believe that overall, the current CPI is still in a low-level recovery trend, and the recovery slope is generally slow.

Luo Zhiheng, Chief Economist and Dean of the Research Institute of Guangdong Kaiyuan Securities, said that macroeconomic regulation should be more effective in promoting the rise of prices.

Monetary policy should take on the responsibility of stabilizing inflation.

Active fiscal policy should play a role in expanding total demand and boosting consumption.

At the same time, stabilize asset prices such as real estate and stock markets as soon as possible, improve the balance sheets of micro-entities, and boost market confidence.

In the medium and long term, promote reforms in fiscal systems, income distribution, household registration systems, and other aspects to resolve the long-term issue of low resident consumption rates.

Pan Helin believes that pure stimulus policies may not help the moderate increase and structural optimization of CPI, and the current stage should start from enhancing consumer confidence.

Consumer confidence comes from the increase in income, so in the long term, to optimize the CPI structure, more diverse wealth opportunities must be created, entrepreneurship and innovation must be encouraged, and the social security system must be improved.

As for the future trend of CPI, Pan Helin believes that September CPI may remain flat with August, but after October, as autumn crops enter the maturity period, CPI may decline.

Tu Qiang, a senior senior macro analyst at Shenwan Hongyuan Securities, also expects that food CPI will support the overall CPI in the third quarter, and the impact of weather may recede in the fourth quarter.

The continuous decline of PPI shows that effective demand is still insufficient.

In terms of PPI, affected by insufficient market demand and the downward trend of some international commodity prices, the national PPI decreased both month-on-month and year-on-year in August.

Looking at the year-on-year comparison, in August, the price of production materials for industrial producers decreased by 2.0%, affecting the total level of industrial producer prices to decrease by about 1.46 percentage points.

Among them, the price of the mining industry increased by 0.9%, the price of the raw material industry decreased by 0.8%, and the price of the processing industry decreased by 2.7%.

The price of living materials decreased by 1.1%, affecting the total level of industrial producer prices to decrease by about 0.29 percentage points.

Among them, the price of food decreased by 1.3%, the price of clothing decreased by 0.4%, the price of general daily necessities remained flat, and the price of durable consumer goods decreased by 1.9%.

In the purchase price of industrial producers, the price of building materials and non-metallics decreased by 4.4%, the price of ferrous metal materials decreased by 4.1%, the price of agricultural and sideline products decreased by 2.9%, the price of fuel power and textile raw materials both decreased by 1.0%, and the price of chemical raw materials decreased by 0.6%; the price of non-ferrous metal materials and wire and cable increased by 9.1%.

Pan Helin said that the continued decline of PPI reflects the core problem of the Chinese economy - insufficient demand, and more forceful measures should be taken to expand domestic demand.

Liu Aihua, a spokesperson for the National Bureau of Statistics, said at a recent press conference of the State Council Information Office that looking at the future period, there are still many factors affecting PPI.

On the one hand, the trend of international commodity prices still has a certain degree of uncertainty; the domestic real estate market is still adjusting, and the demand for building materials and related industries is still weak.

On the other hand, looking at the impact of price changes, the drag effect of the carry-over impact on PPI is expected to decrease in the next stage.

Overall, the year-on-year decline of PPI in the second half of the year is expected to narrow, but there are also some uncertain factors, and there may be fluctuations in some months.

When will PPI turn positive year-on-year?

Many experts believe that the PPI year-on-year turn positive will occur after the third quarter.

Tu Qiang, a senior senior macro analyst at Shenwan Hongyuan Research Institute, believes that the "dual carbon" policy will strengthen or promote upstream prices, and the PPI year-on-year turn positive is expected to be in November.

Lian Ping, the chairman of the China Chief Economists Forum, believes that if the real estate sector can achieve policy goals and stabilize in the second half of the year, both CPI and PPI will perform better in the second half of the year.