Since the beginning of this year, the overall price level has remained relatively weak, but is expected to gradually stabilize and rebound from its lower levels in the second half of the year.

　　 I. Main Characteristics of Price Movements

　　 CPI, PPI The trend is further diverging. From January to June, the CPI rose 1.3% year-on-year, a decline of 1 percentage point compared to the same period last year, continuing its moderate upward trend. The PPI fell 4.6% year-on-year, with the decline widening by 2.7 percentage points compared to the same period last year. The gap between the PPI and CPI growth rates reached 5.9 percentage points, expanding by 1.8 percentage points from the same period last year.

　　 The factors driving price reductions are concentrated in the “three dark” industries. From January to June, prices in the “three black” upstream and downstream industries—coal mining, oil extraction, ferrous metal ore dressing, petroleum processing, and ferrous metal smelting and processing—fell by 13.6%, 31.9%, 21.4%, 21.1%, and 14.2% respectively. Together, these declines lowered the PPI by 3 percentage points and accounted for 70% of the overall decline, an increase of 15 percentage points over the same period last year.

　　 Regional disparities have widened. This is particularly evident in the PPI sector. From January to June, provinces and regions with a high proportion of resource-based and heavy-industry sectors—such as Xinjiang, Heilongjiang, Gansu, and Shanxi—experienced PPI declines of 16.7%, 14.2%, 10.9%, and 10.8%, respectively, significantly higher than the national average. By contrast, provinces and cities with relatively optimized economic structures—such as Beijing, Fujian, Zhejiang, and Guangdong—saw PPI declines of 2.6%, 2.6%, 3%, and 3%, respectively, markedly lower than the national average.

　　In the first half of the year, the decline in the Producer Price Index (PPI) widened significantly, marking 40 consecutive months of year-on-year decline. Looking at the underlying reasons, while domestic economic downward pressure has intensified and domestic demand has remained weak, the more significant factor is the continued volatile decline in international commodity prices, which has had a substantial impact on the domestic market. As of the end of June, the RJ/CRB price index—a measure of commodity price movements—stood at 222.3 points, down 19.5% from the beginning of the year and now generally below the level seen in 2003. Brent crude oil futures, iron ore futures, and Australian BJ thermal coal spot prices fell by 34.3%, 10.3%, and 5.8%, respectively, compared to the beginning of the year. According to calculations, from January to June, the combined decline in international crude oil and iron ore prices alone directly contributed to an approximately 2.7 percentage-point drop in the domestic PPI, accounting for as much as 58% of the total decline.

　　 II. The overall price level in the later period will remain stable at a low level.

　　In the second half of the year, the general price level will continue its relatively weak trend, but positive factors in operation are increasing, and overall prices will remain stable at a low level.

　　 The macroeconomic environment is tending to improve. Since the second half of last year, policies aimed at stabilizing growth have been stepped up and made more effective, and their positive effects are gradually becoming evident. The macroeconomic environment for overall price levels is tending to improve. In particular, since the beginning of this year, financial institutions’ benchmark lending and deposit rates, as well as the reserve requirement ratio, have been lowered three times, resulting in a moderately loose monetary environment that will provide support for overall price levels in the later period.

　　 The real estate market is expected to continue its recovery momentum. Recently, the real estate market has shown an overall recovery. Starting in May, the average residential prices in 100 cities turned from declining to rising on a month-on-month basis, and in June, the increase expanded to 0.6%. The recovery trend is particularly evident in first- and second-tier cities. In the second half of the year, the real estate market is expected to continue its recovery momentum, which will not only help improve the macroeconomic environment for price movements but also provide support for the future trends of the CPI and PPI.

　　 Prices of some agricultural and sideline products remain stable with a slight upward trend. Under the influence of national regulatory policies, prices of staple grains such as wheat and rice will remain generally stable. Affected by cyclical and seasonal factors, hog prices will continue their slight upward trend since March, while vegetable prices may see a slightly higher increase compared to last year. Poultry and egg prices are also likely to remain stable with a gradual upward trend.

　　 Commodity prices may stabilize at low levels. From an international perspective, global oil prices are expected to stabilize amid fluctuations, iron ore prices have limited room to fall and are likely to stabilize or even rise slightly, while copper prices may continue their weak and volatile trend. From a domestic perspective, coal and steel prices are forecast to fluctuate slightly at low levels, and copper prices will likely maintain their weak and volatile trend.

　　Based on a comprehensive assessment, price trends in the second half of the year are expected to stabilize and rebound at lower levels. The year-on-year increase in the CPI will be higher than in the first half, while the year-on-year decline in the PPI will be smaller than in the first half.