ThePaper.cn:

In the first quarter, the producer price index (PPI) continued its downward trend that began last year, and the month-on-month improvement was not significant. How does the NBS assesses the current PPI situation? And what are your predictions for the next stage? Thank you.

Sheng Laiyun:

Thank you for your questions. Among the many positive indicators released, the PPI is indeed worthy of close attention, so your question is very pertinent. The PPI, or the producer price index, refers to the prices at which industrial producers sell their products. In the first quarter of this year, the PPI decreased by 2.7% year-on-year, and in the fourth quarter of last year, it decreased by 2.8%. There are a few points I would like to make about this:

First, analyzing this round of adjustments and the trend, the PPI has begun to show a narrowing decline. Why is this? Let's extend the time frame. This round of PPI adjustments started in October 2022, when PPI was -1.3%. At that time, it was the impact of U.S. interest rate hikes and the decline in international energy prices that caused the PPI to turn negative for the first time. Since then, the decline continued to widen, reaching a low point in June last year when the PPI was -5.4%. However, as China's economy has recovered and improved, the decline in the PPI has continuously narrowed. If we plot a graph for these 18 months, it forms a standard V-shape. Therefore, although the PPI is still decreasing, the rate of decline is narrowing, which is consistent with China's economic recovery.

Second, from a structural perspective, the PPI in the first quarter and March still demonstrated strong structural characteristics. Moreover, the decline in the PPI is due to multiple reasons, including demand factors, as well as cost reductions brought about by industrial restructuring, transformation and technological progress. Therefore, this round of PPI decline is caused by multiple factors from a structural perspective. From an industrial perspective, the top three industries that had a significant impact on PPI's decline last year were coal mining, washing and dressing, non-metallic mineral products, and ferrous metal smelting and pressing. First, the price of coal mining decreased by 15.3% in the first quarter, which had an impact on PPI of nearly 11%. Second, the non-metallic mineral products industry, mainly cement, declined by 7.9% in the first quarter, dragging down the PPI by nearly 15%. Third, the ferrous metal smelting and pressing industry, mainly steel, saw a price decline of 5.0%, which also had an impact on PPI of about 11%. As a result, these three leading industries combined had a nearly 40% impact on the decline of PPI. However, these industries are often related to adjustments of relevant industrial chains brought about by the current industry adjustments, so they are not entirely due to demand. Therefore, this round of PPI adjustments is related to our structural adjustment, transformation and upgrading, as well as industrial differentiation, and cannot be attributed solely to insufficient demand.

Third, you asked about the future trend, which is also something we are very interested in. Our initial assessment suggests that the PPI will continue to show a narrowing decline and a steady increase. First, the economy is recovering, and overall demand is also picking up, which is conducive to supporting the recovery of prices. Second, the stimulatory effects of policies will continue to emerge, especially with the implementation of policies related to promoting large-scale equipment upgrading and replacing old consumer goods with new ones, which will positively impact related industries. Third, there are structural adjustments in some industries. Our greater efforts in supply-side structural reform and transformation and upgrading and the elimination of some traditional industries will bring positive changes to the market supply-demand relationship. There is also a statistical factor, known as the carry-over effect. Last year, the carry-over effect on PPI in the first quarter was -2.3 percentage points, while in the second quarter, it was only -0.9 of a percentage point. In other words, compared with the first quarter, the carry-over effect alone narrowed by 1.4 percentage points in the second quarter, which will support a significant narrowing of the decline in PPI. Of course, price changes are directly related to market changes, so there is considerable uncertainty, and we will continue to monitor the changes in PPI. However, the overall trend will continue to show a narrowing decline and a recovery toward a positive trend, which is consistent with the general trend of China's economic development. Thank you.