Summary of Key Points
In June 2026, the Consumer Price Index (CPI) rose by 1% year-on-year but saw a slowdown in growth, with a decrease of 0.3% month-on-month; the Producer Price Index (PPI) increased by 4.1% year-on-year but declined for the first time on a monthly basis, resulting in an widening “scissors gap” between the two indicators. The underlying issues include insufficient consumer demand (supply exceeding demand), difficulties in passing on rising costs of raw materials to end-users, and uneven profit distribution among companies. Future policies will focus on boosting consumption and expanding investment, while maintaining a loose monetary stance to address weak domestic demand and structural disparities.
1. CPI Growth Slows: The Consumer Market Is Lacking Momentum
The CPI reflects changes in the prices of goods we purchase daily. In June, its growth slowed down, even declining by 0.3% month-on-month, due to three main reasons:
1. Declining oil prices: International oil prices dropped significantly following the agreement between the United States and Iran, leading to a 4.9% decrease in domestic gasoline prices, which directly lowered the overall CPI.
2. Stagnant food prices: Pork prices continued to decline (by 15.9% year-on-year), and fresh vegetables and fruits became cheaper due to seasonal availability. Although egg prices increased, overall food prices were on the decline.
3. Weak demand for major consumer goods: Sales of cars and household appliances fell after subsidies were phased out. In June, car prices decreased by 0.4%, and household appliance prices dropped by 1.0%, indicating a lack of interest in purchasing large items.
The core CPI (excluding highly volatile food and energy costs) also only rose by 1%, indicating that overall prices remained stable—essentially reflecting weak consumer demand, with an abundance of goods but few buyers.
2. PPI Declines Month-on-Month: Strong Upstream Prices, Weak Downstream Demand
The PPI represents the prices at which factories sell their products. In June, it fell for the first time on a monthly basis (after rising by 0.5% the previous month), although it still increased by 4.1% year-on-year. The reasons are contradictory:
- Declining sectors: Falling international oil prices affected the petrochemical industry, and demand in traditional sectors such as steel and construction materials weakened, leading to price reductions.
- Growth in certain sectors: The AI boom drove demand for related products, with virtual reality equipment and industrial robots seeing price increases of 8.4% and 0.5%, respectively.
The more critical issue is the divergence between upstream and downstream markets: prices of raw materials (such as oil and metals) rose by 5.5%, while prices of consumer goods (such as daily necessities) fell by 0.9%. This means that factories are paying more for raw materials but cannot pass on the increased costs to consumers, squeezing their profits.
3. Widening Scissors Gap: Difficulties for Downstream Enterprises
The widening gap between CPI and PPI indicates that manufacturers (upstream) are experiencing higher profits due to rising raw material prices, while downstream companies (such as those in the clothing and appliance industries) are facing increased costs without corresponding price increases, resulting in thinner margins.
This situation can discourage downstream companies from expanding production or even leading to layoffs, which in turn affects consumer spending, creating a vicious cycle.
4. Future Price Trends and Policies: Stabilizing Demand Is Key
- Price Forecast:
- CPI: It is likely to fall below 1% in the second half of the year, depending on international oil prices; if tensions in the Middle East ease and oil prices continue to decline, CPI will drop further.
- PPI: June may mark the peak of year-on-year growth, with a slowdown in July due to the impact of falling oil prices and weak downstream demand.
- Policy Measures:
- Monetary Policy: The central bank will maintain a moderately loose stance, using targeted tools to support domestic demand, technology, and small and medium-sized enterprises (e.g., making lending more accessible to these sectors).
- Consumer Boost: Subsidies and trade-in programs (for cars and appliances) may be introduced to encourage purchases.
- Investment Expansion: Projects in infrastructure and AI (such as data centers) will be accelerated to boost demand for raw materials and create jobs.
Overall, the focus of policies is not on aggressive stimulus but on addressing specific issues to help downstream companies generate profits and encourage consumers to spend, thereby gradually revitalizing the economy.
5. Risk Factors to Watch
- International Oil Price Volatility: Tensions in the Middle East could lead to a rebound in oil prices, potentially driving up inflation.
- El Niño Effects: Extreme weather conditions may cause increases in the prices of agricultural products like sugar and wheat, affecting CPI indirectly.
However, given the ample supply of essential goods and effective price stabilization measures, domestic prices are unlikely to experience significant fluctuations. The main challenge remains addressing weak domestic demand.