How to view the April price data and the central bank's monetary policy report on price analysis

Summary

First, in April 2025, the CPI year-on-year was -0.1%, unchanged from the previous value; the PPI year-on-year was -2.7%, lower than the previous value of -2.5%. The simulated deflation index based on the weights of CPI and PPI at 60% and 40% respectively was -1.14%, lower than the previous value of -1.06%.

Second, the CPI month-on-month was 0.1%, better than the negative growth in the month-on-month figures for February and March. The main price increase clues are threefold: (1) A decrease in imports affected beef prices, with beef prices rising 3.9% month-on-month in April, and the year-on-year decline narrowing by 5.9 percentage points; (2) The active travel of residents during the May Day holiday drove prices before the holiday, with airfares, vehicle rental fees, hotel accommodation, and tourism prices rising month-on-month by 13.5%, 7.3%, 4.5%, and 3.1% respectively, all exceeding seasonal levels, collectively impacting the CPI month-on-month by about 0.10 percentage points; (3) Against the backdrop of rising gold prices, domestic gold jewelry prices rose 10.1% month-on-month, impacting the CPI month-on-month by about 0.06 percentage points.

Third, areas with weak prices include: (1) Pork prices continued to decline month-on-month, with negative month-on-month growth in 6 out of the past 7 months; (2) The price of vehicles was -0.3% month-on-month, indicating that car price reductions are still ongoing; (3) Alcohol prices had a significant month-on-month increase in March, returning to zero growth month-on-month in April, corresponding to an expanded year-on-year decline; (4) The price of traditional Chinese medicine was -0.1% month-on-month in April, with the year-on-year increase narrowing to 0.1%. The prices of traditional Chinese medicine have historically remained strong, with the lowest annual increase in the past decade (2015-2024) being 1.7%, and the average increase being 3.9%, showing a significant slowdown since the second half of last year.

Fourth, the PPI month-on-month was -0.4%, unchanged from the month-on-month decline in March. From the details: (1) Input price pressures remain relatively high, with the month-on-month price in the oil and gas extraction industry at -3.1% (previous value -4.4%), and the month-on-month price in the petroleum, coal, and other fuel processing industries at -2.6% (previous value -2.3%); (2) There is still a necessity for capacity reduction and production control in the steel industry, with the month-on-month price in the black metal smelting and processing industry at -1.0% (previous value -0.5%); (3) Infrastructure supports cement prices, with non-metallic minerals showing zero month-on-month growth (previous value -0.4%), and the year-on-year decline narrowing; (4) The downward price trend in the automotive industry due to technological iterations and market competition remains significant, with the month-on-month price in automotive manufacturing at -0.5% (previous value -0.4%); (5) Under the influence of improved consumption, the prices of general daily necessities turned positive month-on-month, at 0.2% (previous value -0.1%).

Fifth, looking ahead, the PPI base will continue to rise from May to July, coupled with the pressure on capacity utilization in some export-oriented industries due to tariffs, the year-on-year decline in PPI is likely to continue to expand. One indication is that the PMI purchasing price index and output price index both saw significant month-on-month declines in April. This suggests that before August, nominal growth pressures may rise temporarily, which will affect corporate profits and tax revenues. We estimate that this period will still be a time for proactive counter-cyclical policies, and the package of financial policies introduced last week is not the entirety of it. Sixth, the central bank's first quarter "Monetary Policy Implementation Report" released on May 9 delves into price issues in Column 6. The central bank pointed out that "the relationship between money and prices is difficult to simply linearly extrapolate based on traditional theories," and "the effect of money on prices depends on the supply-demand comparison." In simple terms, "if demand rises relative to output, monetary expansion will have an upward effect on prices"; but conversely, "increasing the money supply, under a development model that emphasizes increasing investment and ensuring supply, will instead lead to continuous expansion of capacity and supply, exacerbating the imbalance of oversupply, making it difficult for prices to rebound." Therefore, "the key to boosting prices lies in expanding effective demand, smoothing the supply-demand cycle, and addressing bottlenecks in the real economy," which requires "the coordination of various policies such as fiscal, monetary, industrial, employment, and social security, as well as the coordinated implementation of reform measures to enhance policy synergy." The central bank further pointed out that "in terms of price regulation, we should shift from previously managing high prices to managing low prices, from supporting scale expansion to high-quality development, and from preventing monopolies to preventing disorderly competition."

Seventh, we understand that one idea contained in the above explanation is that the "supply-demand ratio" determines the direction of prices, and under the condition of optimizing the supply-demand ratio, monetary policy expansion will have a positive effect. In the report at the end of last year titled "Guiding the Optimization of the Supply-Demand Ratio: 2025 Medium-term Environmental Outlook," we analyzed the supply-demand ratio. We believe that boosting consumption, stabilizing local investment, optimizing real estate supply and demand, guiding the integration of technology and industrial innovation, and comprehensively rectifying involution-style competition are five policy paths to optimize the supply-demand ratio, which actually corresponds to several investment clues in large consumption, construction chains, technology application ends, and the supply side.

Main Text

In April 2025, the CPI year-on-year was -0.1%, unchanged from the previous value; the PPI year-on-year was -2.7%, lower than the previous value of -2.5%. The simulated deflation index based on CPI and PPI weights of 60% and 40% respectively was -1.14%, lower than the previous value of -1.06%.

The simulated deflation index for October 2024 was -0.98%, narrowing to -0.88% and -0.86% in November and December respectively, and further narrowing to -0.62% in January 2025, with a larger decline to -1.30% in February 2025, and -1.06% and -1.14% in March and April respectively.

The CPI month-on-month was 0.1%, better than the negative growth in the month-on-month figures for February and March. The main clues for rising prices are three: (1) Reduced imports affecting beef prices, with beef prices in April rising 3.9% month-on-month, and the year-on-year decline narrowing by 5.9 percentage points; (2) The active travel of residents during the May Day holiday drove up prices before the holiday, with air tickets, transportation rental fees, hotel accommodation, and tourism prices increasing by 13.5%, 7.3%, 4.5%, and 3.1% respectively, all of which were higher than seasonal levels, collectively impacting the CPI by approximately 0.10 percentage points; (3) Against the backdrop of rising gold prices, domestic gold jewelry prices increased by10.1%month-on-month, impacting the**CPIby approximately0.06**percentage points.**

Beef prices have shown negative growth month-on-month from October 2024 to February 2025, turning positive in March with a 0.5% increase, and significantly rising to 3.9% in April. Year-on-year, March 2025 saw a -13.3% change, with April and May narrowing to -10.8% and -4.9% respectively.

Tourism prices saw month-on-month changes of -4.4% and -5.9% in February and March 2025, turning positive to 3.1% in April. Year-on-year, February 2025 was -9.6%, while March and April were -0.9% and -0.5% respectively.

Areas with weak price performance include: (1) Pork prices continued to decline month-on-month, showing negative growth in6out of the past7months; (2) Transportation prices had a month-on-month change of-0.3%, indicating that car price reductions are still ongoing; (3) Alcohol prices saw a significant month-on-month increase in March, returning to zero growth in April, with corresponding year-on-year declines expanding; (4) Traditional Chinese medicine prices had a month-on-month change of-0.1%in April, with year-on-year growth narrowing to0.1%. Historically, traditional Chinese medicine prices have remained strong, with the lowest annual increase in the past decade (2015-2024) being1.7%, and an average increase of3.9%**, showing a noticeable slowdown since the second half of last year.

Pork prices in April 2025 had a month-on-month change of -1.6%, with this item showing negative growth month-on-month in 6 out of the 7 months from October 2024 to April 2025, except for January which was positive.

Transportation prices from February to April 2025 had month-on-month changes of -0.2%, -0.4%, and -0.3%, with a cumulative year-on-year change of -4.1% in the first four months of this year.

Alcohol prices showed negative growth month-on-month from November 2024 to February 2025, with a month-on-month change of 0.6% in March 2025 and zero growth in April The prices of traditional Chinese medicine have historically rarely experienced month-on-month negative growth. Starting from the second half of 2024, prices are expected to be weak, with month-on-month negative growth in September 2024, February 2025, and April 2025.

PPI month-on-month is -0.4%, unchanged from the month-on-month decline in March. From the details: (1) Input price pressures remain significant, with the month-on-month price in the petroleum and natural gas extraction industry at -3.1% (previous value -4.4%), and the month-on-month price in the petroleum, coal, and other fuel processing industries at -2.6% (previous value -2.3%). (2) There is still a necessity for capacity reduction and production control in the steel industry, with the month-on-month price in the black metal smelting and processing industry at -1.0% (previous value -0.5%); (3) Infrastructure supports cement prices, with non-metallic minerals showing zero month-on-month growth (previous value -0.4%), and the year-on-year decline narrowing; (4) The downward price trend in the automotive industry due to technological iterations and market competition remains significant, with automotive manufacturing month-on-month at -0.5% (previous value -0.4%); (5) Under the influence of improved consumption, the month-on-month price of general daily necessities turned positive, at 0.2% (previous value -0.1%).

In April, the month-on-month PPI for production materials was -0.5% (previous value -0.4%). Among them, the extraction industry was -2.1% (previous value -2.9%); the raw materials industry was -1.0% (previous value -0.6%); and the processing industry was -0.2% (previous value -0.1%).

In April, the month-on-month PPI for living materials was -0.2% (previous value -0.4%). Among them, food was -0.1% (previous value -0.2%); clothing was 0.3% (previous value -0.1%); general daily necessities were 0.2% (previous value -0.1%); and durable consumer goods were -0.7% (previous value -1.0%).

Looking ahead, the PPI **base will continue to rise from May to July, coupled with the pressure on capacity utilization in some export-oriented industries due to tariffs, the year-on-year decline in PPI is still likely to continue to expand. One indication is that the month-on-month PMI purchasing price index and output price index both saw significant declines in April. This means that before August, nominal growth pressure may temporarily increase, which will affect corporate profits and tax revenues. We estimate that this period will still be a time for proactive counter-cyclical policies, and the package of financial policies introduced last week is not the entirety **

From January to April 2024, the Producer Price Index (PPI) hovered at a low level, with year-on-year changes of -2.5%, -2.7%, 2.8%, and -2.5% respectively; from May to July, the decline narrowed, with year-on-year changes of -1.4%, -0.8%, and -0.8%; in August, the year-on-year change was -1.8%, and the decline expanded again. This indicates that the months of May to July this year will face a higher base.

From a month-on-month perspective, the pressure on capacity utilization in export-oriented industries may be a suppressive factor for industrial prices. In the previous report "Which Industries Are Experiencing Counter-Cyclical Growth: An Analysis of April PMI," we pointed out: from the perspective of sub-indicators, the transmission chain from export orders to production, prices, and employment is relatively clear. Export orders fell by 4.3 points month-on-month to 44.7, with an absolute prosperity level only better than the low levels of April 2020 and April 2022 in the past 10 years, reflecting the impact of tariffs on external demand. In terms of absolute prosperity, the midstream equipment manufacturing, textile and apparel industry chain, pharmaceuticals, and chemical industry chain have all experienced a comprehensive slowdown, all of which are industries with a high dependence on external demand in China. From the perspective of export orders, the textile and apparel, chemical, and midstream equipment manufacturing sectors saw the largest declines, with textile and apparel export orders falling by 44.6 points month-on-month, bringing the absolute level down to around 10, marking the historical lowest since data collection began in 2005. The chemical industry saw export orders decline by 31.1 points month-on-month, with an absolute level around 20, which is only better than the historical second-lowest level in April 2020.

The April PMI purchasing price index was 47.0, down from the previous value of 49.8; the output price index was 44.8, down from the previous value of 47.9.

On May 9, the central bank's first-quarter "Monetary Policy Implementation Report" delved into price issues in column 6. The central bank pointed out that "the relationship between money and prices is difficult to simply linearly extrapolate based on traditional theory," and that "the effect of money on prices depends on the supply-demand comparison." In simple terms, "if demand rises relative to output, monetary expansion will show an upward effect on prices"; but conversely, "increasing the money supply, under a development model that emphasizes increasing investment and ensuring supply, will instead lead to continuous expansion of capacity and supply, exacerbating the imbalance of oversupply, making it difficult for prices to rebound." Therefore, "the key to boosting prices lies in expanding effective demand, smoothing the supply-demand cycle, and addressing bottlenecks in the real economy," which requires "coordinated efforts across fiscal, monetary, industrial, employment, social security, and other policies, as well as coordinated reform measures to enhance policy synergy." The central bank further pointed out that "in terms of price regulation, the approach should shift from managing high prices to managing low prices, from supporting scale expansion to high-quality development, and from preventing monopolies to preventing disorderly competition" — we understand that the underlying thought in the above explanation is "supply-demand ratio." **The direction of price determination, under the condition of optimizing the supply-demand ratio, will only have a positive effect when monetary policy is expanded. In last year's report "Guiding the Optimization of the Supply-Demand Ratio: 2025Medium-Term Environmental Outlook," we analyzed the supply-demand ratio. We believe that boosting consumption, stabilizing local investment, optimizing real estate supply and demand, guiding the integration of technology and industrial innovation, and comprehensively rectifying involution-style competition are five policy paths to optimize the supply-demand ratio. This actually corresponds to several investment clues in large consumption, construction chains, technology application ends, and the supply side.

Author of this article: Guo Lei from GF Securities, Source: Guo Lei Macro Tea Room (ID: gh_15a7a9ed7121), Column author for Wall Street Insights

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