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[policy interpretation] what do you think of the future economy of China's CPI returning to the "2" era?
Aug 9,2018
The content below was translated by Tencent automatically for reference.

SMM8, September 9: this morning, the Bureau of Statistics released China's July CPI data, data show that China's July CPI 2.1% year-on-year, expected 2%, compared with the previous value of 1.9%. China's CPI was 0.3% month-on-month in July, with a previous value of-0.1%. China's PPI in July was 4.6 per cent from a year earlier and is expected to be 4.5 per cent, compared with a previous value of 4.7 per cent. China's PPI was 0.1% month-on-month in July, compared with a previous value of 0.3%.

On a month-on-month basis, PPI rose 0.1 per cent, down 0.2 percentage points from the previous month. The price of means of production rose 0.1 percent, down 0.3 percentage points from the previous month, and the price of means of living rose 0.2 percent, unchanged last month. Among the major industries, the oil and gas mining industry rose 1.3 percent, down 3.2 percentage points from the previous month, while the oil, coal and other fuel processing industry rose 0.9 percent and fell 1.4 percent. Ferrous metal smelting and calender processing industry, up 0.5%, down 0.6%. From rising to falling were the non-ferrous metal smelting and Calendering industries, down 1.6 percent, and the chemical raw materials and chemical products industry, down 0.3 percent. The computer, communications and other electronic equipment industry rose 0.7 percent, an increase of 0.6 percentage points over the previous month, while the coal mining and washing industry rose 0.6 percent, an increase of 0.3 percentage points.

"details click: national Bureau of Statistics data interpretation: July 2018 CPI rose slightly, PPI rose back

Huatai Macro Li Chao team:

July CPI month-on-month ratio of + 0.3%, year-on-year + 2.1%, year-on-year growth rate is 0.1 percentage points higher than the previous value, the slight rebound in inflation is in line with our forecast. Pork prices have rebounded since June, which we believe mainly reflects the normal seasonal price increases that began in the middle of the year. The summer weather is hot, Shenyang local pig epidemic, but has been effectively controlled, we think that the probability of significantly driving up the average pork price in the whole country is low. The overall pattern of the pig breeding industry is still in excess of demand, and the production efficiency of large breeding enterprises is relatively high, and the pig cycle has not yet shown obvious signs of recovery, but the year-on-year downward pressure on pig prices is expected to ease gradually in the future. Pork CPI fell-9.6 per cent in July from a year earlier and narrowed again to less than 10 per cent since February, in line with our previous expectations. Fresh vegetable prices rose + 3.8% in July from a year earlier, narrowed from the previous value. For now, for the third quarter of CPI, although abnormal weather factors may bring some upward risk to food prices, but the overall inflation situation is still moderate and controllable, short-term will not form a significant constraint on monetary policy.

Xing Zheng macro:

CPI rebounded modestly: the food segment may still have room to rise. CPI was 2.1 per cent in July from a year earlier, a modest pick-up from a 1.9 per cent reading in June. From the point of view of the sub-items, the performance of education, culture and entertainment, transportation and communications, and food items all exceeded the seasonal pattern. On the one hand, the rise of entertainment and transportation items may be related to the summer travel peak, on the other hand, the continued rise in oil prices has also directly or indirectly contributed to shipping, agricultural products and other items. In particular, it is worth noting that the food section may still have room to rise: in the July CPI section, pork rose only 2.9% from the previous month, and there is still room for price increases; Food prices were negative in July, weaker than the seasonal pattern, but in this year's production reduction and inventory verification environment, food prices are also likely to rise.

Haitong Securities Macro analysts Jiang Chao, Li Jinliu:

CPI continued to rise in July, summer travel peak, transport, tourism and accommodation prices rose significantly, in addition to housing, health care, fuel prices also rose slightly, non-food prices rose 0.3% from the previous month, 2.4% compared with the same period last year. It is the main cause of CPI's upward trend compared with the same period last year. It is predicted that CPI will decline slightly in August. Since August, pig and vegetable prices have continued to pick up, fresh fruit prices have fallen slightly, and food prices as a whole may have risen, but the base for the same period last year is on the high side, and CPI is expected to fall to 1.9 per cent year-on-year or slightly in August.

PPI is expected to continue to fall in August. Steel prices have remained high since August, but coal and oil prices have fallen, with PPI forecast to fall 0.2 per cent in August from a month earlier to 3.5 per cent from a year earlier. After August, the PPI base rose, and the year-on-year PPI may decline compared with the same period last year. Inflationary pressures are expected to be modest this year. Since July, pig and vegetable prices have continued to rebound, and steel prices have reached new highs in the year. There are seasonal and supply constraints behind this, but the current overall background is still economic pressure and weak consumption, and the general direction of leverage in policy has not changed. This means that aggregate demand will continue to fall, restricting the upward strength of inflation, and recent trade frictions and exchange rate depreciation have also brought concern about price increases, the actual impact of which remains to be seen, with little inflationary pressure over the year as a whole.

Bank of Communications Chief Economist Lian Ping:

Under the background of slowing down in the stabilization of domestic demand, the continued decline of M1 growth in narrow money and the possible decline in PPI in the second half of the year, there is a lack of momentum for CPI to rebound significantly in the future. Judging from the tail-up factor, it will fall significantly after July, so inflation is likely to rise sharply in the second half of the year, maintaining the forecast that CPI for the whole year will rise by about 2 per cent year-on-year. Prices remain at a low level, which also provides a loose space for domestic monetary policy.

Guoxin Securities Macro solid Collection team Dong Dezhi, Li Intelligence:

The rise in food prices in July has not yet exceeded the seasonality, CPI is difficult to continue to recover, PPI began to fall back from the same period last year. Overall, the month-on-month CPI in July exceeded the seasonality by only about 0.1 percentage points, a limited range, while food prices did not exceed the seasonal level. From historical experience, food prices are the dominant factor in the domestic inflation cycle.

High-frequency data show that food prices continued to rise seasonally in the first week of August, and food prices are now slightly above seasonal levels in August, with meat prices contributing the most to seasonal increases. Considering that the future price expectation index of the central bank in the second quarter is 61, which is lower than the median level since 2001, at the same time, the overall pig turnover in the second quarter is still significantly lower than that in the same period last year, and it is expected that the subsequent meat price increase will slow down. It is unlikely that overall food prices will significantly exceed seasonality in August. Given that overall CPI was slightly above seasonal levels in August last year, CPI is expected to fall slightly to 2.0 per cent in August from a year earlier. In July, PPI fell from a year earlier to a month earlier. Judging from the industrial high-frequency data, the industrial boom fell slightly in July and remained weak in the first week of August. It is expected that it will be difficult for PPI to rebound sharply from the month-on-month comparison in August, taking into account the very high month-on-month base of PPI in August last year. PPI is expected to fall back to around 3.9 per cent in August from a year earlier.

Shen Wanhong source macro team:

Signs of a pullback in PPI are starting to show. It pointed out that, judging from the data, the increase in the prices of major industrial products has begun to fall since July, and the South China Industrial products Index, Steel Price, and Thermal Coal Price Index are all lower than those in the same period in June.

Professor Cao Heping, School of Economics, Peking University:

The economy is now stable, with adequate supply, strong purchasing power and stable prices, with CPI expected to rise by about 1.8 per cent year-on-year in August.

Niu Li, director of the Macro Research Office of the China National Information Center:

Both CPI and PPPI rose more than expected in July, of which CPI was mainly driven by rising prices in the service sector, including transportation and tourism, which was related to peak summer travel, China's medical price reform, and the corresponding increase in service prices after consumer upgrading. It belongs to the normal category, and behind it also reflects the rise of labor costs, and the driving factors of the rise in food prices are limited, affecting the rise of CPI by about 0.03 percentage points, while the rise in non-food prices affects the rise of CPI by about 0.28 percentage points. The higher-than-expected increase in PPI is related to the base, which is expected to be high from July to August, but will fall back later. On the whole, although the trade war is still continuing, considering that the United States will curb total demand after imposing tariffs, prices should theoretically fall back. It is expected that CPI growth will show a downward trend in the second half of the year, and will be maintained at about 2 percent for the whole year. PPI is expected to be around 3.5 per cent for the full year.

Bureau of Statistics
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