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The CPI in June hit a two-year high. As the "hog cycle" has entered the upward trajectory, will inflationary pressures intensify in the second half of the year? What measures will the government take to keep prices within a reasonable range? Thank you.
Fu Linghui:
Thank you for your question. Since the beginning of this year, global inflationary pressures have risen, and domestic concerns about prices have also increased. As the domestic market demand has gradually recovered, coupled with imported factors from abroad, the year-on-year growth of the CPI continues to increase but remains moderate. In the first half of the year, the CPI went up by 1.7% year on year, with food prices down 0.4% and non-food prices up 2.2%. In the second quarter, CPI growth was generally stable, up 2.3% year on year. On a monthly basis, the CPI went up by 2.1% year on year both in April and May, up 2.5% in June. In the second quarter, CPI changes have the following features:
First, food prices rose after a fall. Food prices rose 2.3% in the second quarter after a 3.1% drop in the first quarter. This can be explained by an intensified price increase in fresh fruit, fresh vegetables, eggs, and grain and a rally in pork prices. Pork prices decreased by 21.3% in the second quarter, 20.5 percentage points lower than the previous quarter.
Second, industrial consumer prices have increased at a quicker pace. In the second quarter, industrial consumer prices went up by 4.1% year on year, 1.1 percentage points higher than that of the first quarter. This was mainly affected by international import factors; prices of some energy products have continued to rise, with gasoline and diesel prices rising 30% and 32.8%, respectively, year on year in the second quarter.
Third, the rise in service prices has moderated. Affected by factors such as the epidemic, the demand for services has been weak, which dragged down the increase in service prices. Service prices went up by 0.8% year on year in the second quarter, 0.5 percentage points lower than that in the first. The price increases of airline tickets and tourism have all declined. June's CPI went up by 2.5% year on year, mainly due to the lower base in the previous year. Among the 2.5% year-on-year increase in June, the carryover effect accounted for 1.2 percentage points, 0.4 percentage points higher than the previous month, while the influence of new factors was about 1.3 percentage points, the same as the previous month. In terms of industry, food prices went up 2.9% year on year, 0.6 percentage points higher than last month, mainly due to the narrowed drop in pork prices. Energy prices went up 17.4%, an increase of 2.7 percentage points, mainly due to the impact of rising gasoline and diesel prices. Core CPI, excluding the prices of food and energy, went up by 1%, 0.1 percentage points higher than last month, indicating that supply and demand have stabilized.
From the international perspective, China's inflation has been significantly lower than that of European and American countries, mainly because China has not implemented massive stimulus policies. Facing imported inflation, we stepped up efforts to ensure supply and stabilize prices at home. In addition, grain production has been strengthened, and China has reaped a summer grain harvest this year. Summer grain production increased by 1% over the previous year, which meant that the CPI was generally stable. Price stability is not only conducive to the smooth operation of the economy but also to the improvement of people's livelihoods.
As for whether rising pork prices will affect the overall increase of the CPI, generally speaking, the impact has been limited. At present, hog production capacity has returned to normal, and their prices are not expected to rise sharply. More supply is expected as pigs that were previously put on hold will be brought into the market. In addition, relevant departments will strengthen market regulation and stabilize supply and the demand, which will help ensure stable prices.
Next, as we enter the flood season, the supply of fresh products from certain areas might be affected, and the influence of imported factors may also continue, but the capacity of supplying products and services has been sufficient, and prices are expected to maintain a moderate upward trend. Thank you.
