CITIC Securities: The price increase in the upstream is gradually spreading downwards.

CITIC Securities pointed out that in May, the PPI rose to 3.9% compared to the same period last year, once again exceeding market expectations. Although crude oil prices have marginally fallen, the prices of the chemical, non-ferrous metal, electronic, steel, and coal industries have contributed strong upward momentum. The CPI for May remained flat compared to the previous month at 1.2%, slightly below market expectations, with the core CPI showing a slight decline, possibly driven by weak prices in the "energy" and "services" sectors. Among the related sub-indices, energy, transportation services, and airplane ticket prices showed weaker performance in the CPI; while travel agencies and other tourism services, clothing, and communication tools showed relatively stronger performance. The current market is generally concerned about the impact of domestically-induced inflation on the economy. Looking ahead, the PPI-CPI spread for June may remain high, and in the second half of the year, with the high base effect of the PPI, the rate of increase in PPI may slow down, with industries in high demand showing strong pricing power, but problems with weak demand industries may gradually surface. If international crude oil prices remain high, the growth rate of profits for industrial enterprises above designated size in China may exhibit a trend of "rising first, then falling". In terms of bond market strategy, under the backdrop of loose monetary environment, the bond market has recently shown overall strength. Before the increase in policy on the consumption side becomes clear, it is expected that the market's pricing of this round of inflation may be more focused on the perspective of input and cost, and the risk of a trend of rising long-term bond rates is relatively limited.