July data released by the National Bureau of Statistics on August 9 shows that the Consumer Price Index (CPI) rose 0.5% year-on-year and fell 0.1% month-on-month, while the Producer Price Index (PPI) for industrial enterprises increased 3.5% year-on-year and decreased 0.7% month-on-month. How should we interpret the current price dynamics?

Statistical data reveals that the 0.5% year-on-year CPI increase in July represented a 0.5 percentage point decline from the previous month, marking the first drop below 1% since February this year. The slower CPI growth rate was primarily driven by a smaller increase in gasoline prices, which rose 16 percentage points less than the previous month due to international factors. This reduced the upward impact on CPI by about 0.45 percentage points, bringing the energy price increase down to 0.6%, according to Dong Lijuan, Chief Statistician at the NBS Urban Department.

Despite the dampening effect of gasoline price deceleration, the CPI still rose 0.5% year-on-year in July. Core CPI, excluding food and energy, increased 0.9% year-on-year, indicating that consumer prices are generally maintaining a moderate upward trend, said Xu Guangjian, Vice President of the China Price Association. On a month-on-month basis, CPI fell 0.1%, narrowing by 0.2 percentage points from June.

Xu Guangjian noted that in July, volatility in international crude oil prices led to a 10.7% month-on-month decline in domestic gasoline prices, which widened by 5.8 percentage points from the previous month, contributing approximately 0.35 percentage points to the CPI's month-on-month decrease. Additionally, seasonal fruits and vegetables flooded the market with ample supply, causing fresh fruit prices to drop 3.8%, which reduced the CPI month-on-month by about 0.07 percentage points.

Compared to June, some domestic industries showed positive changes in July, with month-on-month price increases emerging. Pork prices rebounded as the effect of comprehensive production capacity regulation policies for live pigs became evident, combined with extreme weather events like high temperatures and heavy rainfall in some regions that raised transportation costs. This shifted pork prices from a 0.8% month-on-month decline in June to a 4.1% increase in July, contributing about 0.07 percentage points to the CPI's month-on-month rise. Consumer electronics demand remained robust, driven by artificial intelligence promoting product upgrades. Prices for tablet computers, computers, and mobile phones rose by 11.3%, 5.5%, and 1.0%, respectively, collectively contributing about 0.03 percentage points to the CPI's month-on-month increase. Service prices also climbed, fueled by increased summer travel demand, which raised prices for travel agency fees, hotel accommodation, airfares, and vehicle rental services. Additionally, ongoing policy-driven price adjustments in some regions lifted medical service prices by 1.1%, contributing about 0.07 percentage points to the CPI's month-on-month rise.

The gradual effectiveness of live pig production capacity regulation, upward support for international grain prices, the release of demand from new drivers like AI, and the continued implementation of consumption-promoting policies will all provide support for a continued moderate recovery in CPI, stated Liu Fang, a researcher at the Market and Price Research Institute of the National Development and Reform Commission.

In July, influenced by import and seasonal factors, the PPI fell 0.7% month-on-month, while rising 3.5% year-on-year, a 0.6 percentage point slowdown from the previous month. Dong Lijuan explained that the month-on-month PPI decline widened by 0.4 percentage points, driven by two factors: international factors leading to price drops in petroleum and non-ferrous metal-related industries, and seasonal effects such as frequent high temperatures, rain, and typhoons in July, which slowed construction project progress and caused price declines in some sectors. Meanwhile, increased hydropower and wind power generation led to price drops of 10.3% and 3.9%, respectively.

However, industrial transformation and upgrading, along with consumption quality expansion, are driving increased demand and rising prices in some sectors. New growth drivers are strengthening, with month-on-month price increases of 2.5% for smart unmanned aerial vehicle manufacturing, 0.4% for carbon fiber materials, and 0.3% for ships and related equipment manufacturing. Quality-oriented consumption is growing rapidly, with month-on-month price increases of 3.4% for smart home consumer equipment manufacturing and 0.7% for skincare cosmetics manufacturing, Dong Lijuan added.

Liu Fang emphasized that China's economy is resilient, with ample supply of essential goods. Against the backdrop of fully leveraging various existing and incremental policies and increasing counter-cyclical adjustments, the potential for domestic demand is expected to be further released. It is anticipated that the price trend in the second half of the year will continue to show a pattern of moderate CPI increases and a stabilizing PPI growth trend.