Merchants Macro: Inflation may have reached the bottom of the year.

China Merchants Macro Research Report stated that looking ahead, prices will continue to fluctuate at low levels. 1) It is expected that the CPI in July will stay around 0.1%. Since February, the main drag on CPI has been food and energy prices, while core CPI has provided the main support. Looking ahead, the current agricultural product supply is in the peak season, in a situation where supply exceeds demand, the prices of related commodities are likely to continue to weaken, while service prices will receive some support from the peak season for summer travel. In addition, international oil prices rose and then fell in June, although the NDRC raised oil prices again on July 1, it is expected to lower prices within the month, weakening the contribution of energy prices to the CPI for that month. 2) It is expected that the decline in the PPI in June will still be significant, with the central operating point around -3%. It is expected that the decline in the PPI in July will still be significant, likely to stay around -3%. On one hand, July usually faces the influence of the mid-year production off-season and the increase in high temperatures and rain, some industries will show a seasonal decline in operating rates, combined with the lower base effect of the same period last year, the recent fall in international crude oil prices, and the intensification of adjustments in the real estate market, it is expected that the decline in PPI in some industries will continue to expand. However, on the other hand, the recent emphasis by regulators on "anti-internal discord" and the gradual rollout in key industries may to some extent boost industrial product prices, but the extent of the rebound should not be overestimated, it is expected that the PPI will likely linger at low levels. If the effects of "anti-internal discord and de-capacity" are significant, the PPI is expected to gradually move away from the bottom point within the year, still emphasizing that the PPI determines asset styles, with a short-term preference for a dumbbell-shaped strategy.