Market News International: 

In May, producer price inflation accelerated to 3.9% year on year from 2.8% in April, while the CPI remained broadly stable at 1.2%. How does the NBS assess the transmission of upstream price pressures to downstream consumer prices? Are there signs that some manufacturers are facing margin pressure because they are unable to fully pass higher costs onto consumers?

Fu Linghui:

I would like to invite Ms. Wang to answer these questions.

Wang Guanhua:

Thank you for your questions. Your first question, on the transmission from the producer price index (PPI) to CPI, touches on an issue that has attracted widespread attention. Although the increase in the PPI has widened, the CPI has remained generally stable and prices of daily essentials have remained steady. There are several main reasons for this.

First, due to the different connotations of CPI and PPI indicators, the transmission from PPI to CPI exhibits obvious structural characteristics. PPI reflects prices in the industrial production sector, while CPI reflects prices in the household consumption sector and covers all major categories of consumer spending, including both goods and services. Therefore, the transmission from PPI to CPI is mainly concentrated in the industrial consumer goods sector, while food and service prices, which account for a large proportion of CPI, are less affected by fluctuations in industrial product prices.

Second, from the perspective of price transmission patterns, upstream industrial product prices are directly affected by international commodity prices. However, as upstream prices are transmitted along the industrial chain to the midstream processing stage, the downstream finished product manufacturing stage, and finally to the consumer-end market, this process is subject to factors such as market competition and technological progress. As a result, price transmission often weakens along the industrial chain.

Third, China's economy is generally stable, with resilient industrial and supply chains, abundant supply of goods and services, and effective policies to ensure supply and stabilize prices. In particular, the country's timely implementation of the temporary price control mechanism for refined oil products has effectively offset the impact of fluctuations in international energy prices and provided strong support for the stable operation of domestic prices.

Your second question concerns increasing pressure on businesses' operations due to rising costs, which indeed deserves attention. Affected by multiple factors such as differences in the division of labor in the industrial chain, market demand and industry competition, the profitability of different industries has shown certain divergence, and some midstream and downstream enterprises are facing periodic cost pressures. Faced with cost changes, many enterprises have taken proactive measures to tap potential and increase efficiency to offset pressure through technological upgrades, refined management and market expansion. Relevant departments and regions have continued to implement and refine policies to help enterprises, supporting large-scale equipment upgrading and renovation and taking measures to reduce energy and logistics costs. These efforts are expected to gradually yield positive effects. From a national perspective, although some enterprises still face pressure in their production and operation, with the rapid growth of industrial production and the rebound in industrial product prices, the business revenue and profits of industrial enterprises have maintained rapid growth, and the resilience of the industrial economy continues to be evident. In the first four months, the operating revenue of industrial enterprises above designated size grew 5.2% year on year, 0.2 percentage point higher than that of the first three months. Profits of industrial enterprises increased 18.2%, up 2.7 percentage points. Thank you.