GF Securities' Guo Lei: September CPI continues to show slow improvement characteristics, and "anti-involution" remains very important for PPI recovery

Summary

First, the September CPI year-on-year is -0.3%, slightly lower than our model prediction of -0.18% and higher than the previous value of -0.4%; the PPI year-on-year is -2.3%, which is basically in line with our prediction of -2.36% and higher than the previous value of -2.9%. The simulated deflator index based on CPI and PPI at 60% and 40% respectively is approximately -1.10%, higher than the previous value of -1.40%, marking the highest since April.

Second, the CPI continues to show a slow improvement: (1) month-on-month is 0.1%, slightly higher than the previous value of zero growth; (2) consumer goods prices increased by 0.3% month-on-month, higher than the previous value of 0.1%. Excluding energy, industrial consumer goods prices increased by 0.5%, contributing approximately 0.12 percentage points to the month-on-month CPI increase. (3) The core CPI excluding food and energy year-on-year is 1.0%, marking the fifth consecutive month of improvement and the first time since March 2024 that it has reached above 1%.

Third, from the main components of the CPI, notable details include: (1) pork prices continue to decline, with a month-on-month change of -0.7% in September; (2) alcoholic beverages have not stopped declining, with a month-on-month change of -0.3% in September; (3) corresponding to gold prices, the price of gold jewelry has increased significantly; (4) rent performance is neutral, with zero month-on-month growth for the second consecutive month; (5) household appliances (mainly home appliances) have a month-on-month change of 0.6% in September, marking the third consecutive month of positive month-on-month growth; (6) medical service prices show a slightly strong trend, with month-on-month changes not lower than 0.3% over the past six months, and a year-on-year change of 1.9% in September.

Fourth, are there areas in the CPI that show significant year-on-year positive growth every year? The price of traditional Chinese medicine is one of them before 2025, with an annual average year-on-year growth of 4.4% from 2011 to 2024, and the lowest year-on-year increase being 1.7%. However, the momentum of traditional Chinese medicine prices is slowing down in 2025, with zero year-on-year growth in the first nine months; another area is household service prices, which have slowed down over the past two years but still show a year-on-year increase of 1.7%, with a year-on-year change of 2.0% in the first nine months of this year. Then there are medical service prices, with the lowest year since 2011 being a year-on-year change of 0.6%, and the past two years showing year-on-year changes above 1%, with a year-on-year change of 1.0% in the first nine months of this year.

Fifth, although the PPI did not turn positive month-on-month in September, it has shown zero month-on-month growth for two consecutive months, which is an improvement compared to the previous eight months of negative month-on-month growth. From the main categories, one positive contribution comes from upstream mining, with a month-on-month change of 1.2% in September, showing significant improvement in coal mining prices over the past two months; another positive contribution comes from downstream general daily necessities, with a month-on-month change of 0.2% in September. Changes in raw materials, processed goods, food, and clothing are minimal. The main drag still comes from durable consumer goods, with a month-on-month PPI for durable consumer goods of -0.4% in September.

Sixth, from specific industries, the durable consumer goods sector, represented by the automotive manufacturing industry, has a month-on-month change of -0.5% in September (previous value -0.3%), with the cumulative year-on-year decline further expanding to -3.0%. This may be related to the rapid innovation in this industry, but it will lead to downward price pressure on the overall economy, constraining corporate profits and pushing up real interest rates Looking back at the first three quarters of this year, the cumulative decline of PPI exceeding -2.8% has significantly impacted several industries: (1) upstream mining and related processing industries, where coal mining has a cumulative year-on-year decline of -16.9% and black metal smelting has a cumulative year-on-year decline of -8.6%; (2) midstream chemical and building materials, where chemicals have a cumulative year-on-year decline of -4.9%, chemical fibers -6.7%, and non-metals -3.8%; (3) midstream automobile manufacturing with a cumulative year-on-year decline of -3.0%; (4) downstream agricultural and sideline food processing with a cumulative year-on-year decline of -3.4%. It remains crucial to promote "anti-involution" in related fields. Compared to 2024, the price in the electrical machinery industry has improved.

Seventh, let's look at the overall macroeconomic situation. If we break down the macroeconomic landscape into four lines: quantity, price, liquidity, and risk preference, the September PMI, import data, and high-frequency construction industry data indicate that project investment has accelerated against the backdrop of concentrated implementation of policy financial tools, and the economy is expected to stabilize marginally again; in October, while crude oil prices may exert some drag, domestic demand commodity prices remain stable, coupled with a low CPI base, it is expected that prices will still show a weak improvement trend year-on-year; there is a window for interest rate cuts overseas, and domestic monetary policy maintains reasonable liquidity, with liquidity conditions basically stable; the main uncertainties lie in overseas tariff disturbances and their impact on valuation issues in certain sectors. This year, global asset concentration is relatively high (in fields such as AI technology and non-ferrous metals), and after a certain stage, the market will have divergent views on space. In the latest weekly report "On External Tariff Disturbances: Three Historical Experiences," we observe using the "Mao Index" and "Ning Combination" since 2018, showing that their historical trends have little correlation with external tariffs, and the safety margin of the assets themselves is a more important pricing factor.

Main Text

In September, the CPI year-on-year was -0.3%, slightly lower than our model prediction of -0.18%, but higher than the previous value of -0.4%; the PPI year-on-year was -2.3%, which is basically in line with our prediction of -2.36%, and higher than the previous value of -2.9%. The simulated deflation index based on CPI and PPI at 60% and 40% respectively is approximately -1.10%, higher than the previous value of -1.40%, marking the highest since April.

In the report "Asset Revaluation at Present: Constraints and Momentum," we pointed out: In short, the price improvement slope in September first flattened and then rose, accompanied by CPI entering a low base period, with a significant opportunity for the weekly deflation index to rebound to around "-1". In PPI, non-ferrous metals saw price increases in the first and last weeks, with domestic varieties performing in the intermediate period. It is expected that with monthly CPI and PPI at -0.18% and -2.36% respectively, the September deflation index is expected to rise to -1.1%.

CPI continues to show characteristics of slow improvement: (1) month-on-month at 0.1%, slightly higher than the previous value of zero growth; (2) consumer goods prices increased by 0.3% month-on-month, higher than the previous value of 0.1% [1] Excluding energy, the price of industrial consumer goods rose by 0.5%, contributing approximately 0.12 percentage points to the month-on-month increase in CPI. (3) The core CPI, excluding food and energy, was 1.0% year-on-year, marking the fifth consecutive month of improvement and the first time it has exceeded 1% since March 2024.

In September, the month-on-month CPI was 0.1%, with food CPI month-on-month at 0.7% (previous value 0.5%); non-food CPI month-on-month at -0.1% (previous value -0.1%).

In September, the month-on-month CPI for consumer goods was 0.3% (previous value 0.3%), while services saw a month-on-month decrease of -0.3% (previous value zero growth).

From the main components of CPI, notable details include: (1) Pork prices continued to decline, with a month-on-month change of -0.7% in September; (2) Alcohol prices did not stop falling, with a month-on-month change of -0.3% in September; (3) Corresponding to gold prices, the price of gold jewelry rose significantly; (4) Rent performance was neutral, with zero growth month-on-month for the second consecutive month; (5) Household appliances (mainly home appliances) had a month-on-month change of 0.6% in September, marking the third consecutive month of positive growth; (6) The price trend of medical services was slightly strong, with month-on-month changes not lower than 0.3% over the past six months, and a year-on-year change of 1.9% in September.

In September, pork prices had a month-on-month change of -0.7% (previous value -0.5%); fresh vegetable prices rose by 6.1% month-on-month, previous value 8.5%.

In September, alcohol prices had a month-on-month change of -0.3% (previous value -0.2%); the price of gold jewelry rose by 6.5% month-on-month and increased by 42.1% year-on-year.

In September, rental housing prices had zero growth month-on-month (previous value zero growth); household appliances had a month-on-month change of 0.6% (previous value 1.1%); transportation tools had a month-on-month change of -0.1% (previous value zero growth), with fuel for transportation tools decreasing by -1.7% month-on-month (previous value -0.9%).

In September, the month-on-month changes for traditional Chinese medicine, Western medicine, and medical services were -0.1%, 0, and 0.3%, respectively. Medical services had a year-on-year change of 1.9%.

Are there areas in CPI that show significant year-on-year positive growth every year? Before 2025, traditional Chinese medicine prices are one of them, with an annual average year-on-year increase of 4.4% from 2011 to 2024, and the lowest year-on-year increase being 1.7%. However, the momentum for traditional Chinese medicine prices is slowing down in 2025, with zero growth year-on-year in the first nine months; another area is household service prices, which have slowed down over the past two years but still show a year-on-year increase of 1.7% each year, with a year-on-year change of 2.0% in the first nine months of this year. Then there are medical service prices, which have had a minimum year-on-year change of 0.6% since 2011, with year-on-year changes above 1% in the past two years, and a year-on-year change of 1.0% in the first nine months of this year.

In the previous report "How to View April Price Data and the Central Bank's Monetary Policy Report on Price Analysis," we pointed out that the year-on-year increase in traditional Chinese medicine prices over the past decade (2015-2024) has had a minimum of 1.7%, with an average increase of 3.9%. Historically, there has been almost no month-on-month negative growth, but starting in the second half of 2024, prices are expected to weaken, with month-on-month negative growth in September 2024, February 2025, and April 2025

Although the PPI did not turn positive month-on-month in September, it has shown zero growth for two consecutive months, which is an improvement compared to the previous eight months of negative month-on-month growth. From the perspective of major categories, one positive contribution comes from upstream mining, with a month-on-month increase of 1.2% in September; the second positive contribution is from downstream general daily necessities, with a month-on-month increase of 0.2%. The changes in raw materials, processed goods, food, and clothing are relatively minor. The main drag still comes from durable consumer goods, with a month-on-month PPI for durable consumer goods of -0.4% in September.

In the PPI for production materials in September, the mining industry had a month-on-month increase of 1.2% (previous value 1.3%); the raw materials industry showed zero growth (previous value 0.2%); and the processing industry had a month-on-month decrease of -0.1% (previous value zero growth). The prices in the coal mining industry have improved in the last two months, with month-on-month increases of 2.8% and 2.5% in August and September, respectively.

In the PPI for living materials in September, the food category had a month-on-month decrease of -0.1% (previous value 0.1%); the clothing category showed zero growth (previous value zero growth); the general daily necessities category had a month-on-month increase of 0.2% (previous value -0.2%); and the durable consumer goods category had a month-on-month decrease of -0.4% (previous value -0.3%).

From the perspective of specific industries, the durable consumer goods sector, represented by the automotive manufacturing industry, had a month-on-month decrease of -0.5% in September (previous value -0.3%), with the cumulative year-on-year decline further expanding to -3.0%. This may be related to the rapid innovation in this industry, but it will lead to price declines in the overall economy, constraining corporate profits and pushing up real interest rates. Looking back at the first three quarters of this year, industries that have a relatively large drag on the PPI, exceeding the cumulative decline of -2.8%, include: (1) upstream mining and related processing industries, where coal mining has a cumulative year-on-year decline of -16.9% and black metal smelting has a cumulative year-on-year decline of -8.6%; (2) midstream chemical building materials, where chemicals have a cumulative year-on-year decline of -4.9%, chemical fibers -6.7%, and non-metals -3.8%; (3) midstream automotive manufacturing with a cumulative year-on-year decline of -3.0%; (4) downstream agricultural and sideline food processing with a cumulative year-on-year decline of -3.4%. Promoting "anti-involution" in related fields remains very important. Compared to 2024, the prices in the electrical machinery industry have improved.

In the report "Reshaping Broad-based Growth" at the end of 2024, we pointed out that, looking at the downward trend of PPI prices in 2024, one of the main drags comes from insufficient demand in the construction industry chain, such as coal (-8.4%, cumulative for the first 10 months, same below), black smelting (-6.0%), non-metals (-7.0%), and chemicals (-5.6%); the second drag comes from rapidly growing new industries, such as electrical machinery (-3.5%), automobiles (-2.1%), and computer communication electronics (-2.4%) Compared to the same period last year, the price of the electrical machinery industry in the first three quarters of this year decreased by 1.8%, showing significant improvement. This is partly due to the improvement in price order in industries such as photovoltaics; secondly, the situation of price-for-volume promotions in home appliances has also improved.

Now let's look at the overall macroeconomic situation. If we break down the macroeconomic aspects into four lines: quantity, price, liquidity, and risk preference, the September PMI, import data, and high-frequency construction industry data indicate that under the concentrated implementation of policy financial tools, project investment has accelerated, and the economy is expected to stabilize marginally again; in October, crude oil prices may have a drag, but domestic demand commodity prices remain stable, coupled with a low CPI base, it is expected that prices will still show a weak improvement trend year-on-year; there is a window for interest rate cuts overseas, and domestic monetary policy maintains reasonable and ample liquidity, with liquidity conditions basically stable; the main uncertainty lies in overseas tariff disturbances and their impact on valuation issues in certain sectors. This year, global asset concentration is relatively high (in areas such as AI technology and non-ferrous metals), and after a certain stage, the market will have divergences regarding space. In the latest weekly report "On External Tariff Disturbances: Three Historical Experiences," we observe using the "Mao Index" and "Ning Combination" since 2018, and can see that their historical trends are not closely related to external tariffs; the safety margin of the assets themselves is a more important pricing factor. The impact of de-globalization tariffs has exceeded expectations; there is a re-emergence of a micro "export rush" rhythm; some products face specific industry tariffs; and the support of new policy financial tools for infrastructure is stronger than expected.

Author of this article: Guo Lei from GF SEC, original source: Guo Lei Macro Tea House, original title: "How to Understand the Latest Price Data and Current Macroeconomic Situation"

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