SCIO press conference on national economic performance in H1 2023

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Statistics show that China's CPI came in flat in June compared with the same period last year, and the producer price index (PPI) fell by 5.4% year on year. Does this mean that deflation is coming? What's your assessment of the price issue at present? Thank you.

Fu Linghui:

Many people have paid considerable attention to the price issue, and there is a lot of discussion about deflation. As I have said at previous press conferences, generally speaking, deflation is not currently apparent in China and is not expected to emerge in the next stage. Even though prices are temporarily operating at a low level, in terms of economic growth and money supply indicators, China's economy is not currently in a state of deflation as it does not meet the necessary conditions.

Examining price itself, in the first half of the year, the sluggish global economic recovery and falling international energy prices led to a drop in domestic energy prices. Additionally, domestic car manufacturers have lowered their prices to increase sales, and pork prices have decreased. Coupled with the high base from the same period last year, the growth of China's CPI slowed down in the first half of the year. China's CPI increased by 0.7% year on year, a 0.6 percentage point lower than the previous quarter. The main characteristics are as follows. First, the growth of food prices declined. In the first half of the year, food prices rose by 2.5% year on year, 1.2 percentage points lower than the first quarter of the year. Among them, the prices of fresh fruits and poultry rose rapidly, up 7.9% and 6.4%, respectively. Due to sufficient hog production capacity, pork prices dropped in May compared to last year, with an average increase of 3.2% in the first half of the year. Second, energy prices fell. Due to a drop in international energy prices, China's energy prices fell by 3.5% in the first half of the year, with gasoline and diesel prices falling by 7.3% and 8%, respectively. Third, service prices rose slightly. Driven by the recovery of service consumption, the growth of service prices has expanded. In the first half of the year, service prices rose by 0.9% year on year, a 0.1 percentage point higher than the first quarter of the year, with prices for flight tickets, hotel accommodation, and tourism rising by 20.2%, 8.6%, and 7.1%, respectively. Fourth, the core CPI increased steadily. In the first half of the year, the core CPI, excluding food and energy, rose by 0.7% year on year, a 0.1 percentage point lower than the first quarter.

China's CPI remained flat in June compared to the same period last year, transitioning from a 0.2% increase in the previous month to year-on-year stability, which has also drawn widespread attention. Generally speaking, a modest increase in CPI is due to a combination of international and domestic factors and is temporary. Since this year, China has fully resumed normal socio-economic activities, market demand has gradually expanded, and production supply has continued to increase. The Chinese economy has demonstrated an encouraging momentum of recovery. In terms of supply, during the epidemic, China intensified efforts to alleviate difficulties for enterprises, thereby preserving the survival of many businesses. Post-epidemic, with its complete industrial system and robust production capacity, China swiftly augmented market supply and improved employment, showing an impressive recovery in production supply. Regarding demand, impacted by the epidemic over the past three years, residents' income and corporate revenue were both affected to some extent. The recovery of corresponding market demand takes some time. The asynchronous recovery between supply and demand has led to a low level of CPI at present to a certain extent.

Imported pressures and the high base from the same period last year have also led to a temporary drop in CPI growth. Looking forward, with the recovery of China's economy, growing market demand, and smooth economic circulation, the supply-demand relationship will gradually ease. Regarding food prices, China's grain output is generally stable, which helps stabilize food prices. The seasonal increase in pork consumption demand will also spur prices to rise. Concerning manufactured goods prices, the influence of international energy prices may persist, but the impact of short-term price reductions and promotions by car manufacturers is expected to fade. In terms of service prices, as demand for services steadily expands, service prices will maintain a stable increase. In the second quarter of the year, service prices rose by 0.9% year on year, a 0.1 percentage point higher than the first quarter. Given the above factors, and as the high base factor from the same period last year gradually diminishes, price increases will progressively return to a reasonable level. Thank you.

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