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In January 2022, CPI rose by 0.9% year-on-year, down 0.6 percentage points, lower than our expectation (1.2%); The PPI in January was 9.1% year-on-year, down 1.2 percentage points from the previous month, which was basically consistent with our expectation (9.0%). The lower than expected CPI was mainly due to the sluggish consumer demand for pre holiday services, and the anti seasonal decline in pork prices was consistent with our expectations. The significant drop in PPI expectations shows that the tight supply of coal and steel in China has been greatly alleviated. From the change direction of global crude oil supply and demand during the year, the current oil price may have been at the top of the stage, and the industrial supply side constraints tend to ease throughout the year.
Before the Spring Festival, the rise of CPI food was relatively low anti seasonally, which confirmed that the changes of large-scale breeding and meat demand structure have significantly weakened the fluctuation of pig cycle, and it is difficult to expect the surge of meat prices during the year. The food CPI in January was 1.4% month on month, which was completely consistent with our previous expectation, 1.2 percentage points lower than the normal seasonality, mainly due to the anti Spring Festival month on month decline of pork prices by – 2.5%, which largely falsified the view that the pig cycle will return to the sharp upward trend in 2022. On the one hand, since the last round of pig cycle, the proportion of large-scale breeding has increased significantly, the decline in pork prices in the early stage has not led to a significant contraction in supply, and the pig stock 21q4 tends to improve; On the other hand, during the surge in pig prices in 2019, residents’ meat intake preferences changed, and pork demand was partially replaced by other meat, strengthening the stability of meat prices. In addition, the supply of fresh vegetables in January was also relatively sufficient.
Before the Spring Festival holiday, the time window for returning home is scattered, weakening the increase of transportation fees. In addition, the dissemination of Omicron epidemic affects the consumption enthusiasm of tourism and other services, and the increase of service CPI is obviously low. In January, the service CPI rose only slightly by 0.2 percentage points to 1.7% under the year-on-year low base. This year’s Spring Festival holiday coincides with the weekend of compensatory leave, and the time window of returning home is more scattered than in previous years, weakening the increase of transportation expenses such as air tickets before the festival. In addition, the epidemic has tightened the management of many scenic spots, and the consumption enthusiasm of tourism and other services before and after the Spring Festival is not high. The CPI of services other than rent is 0.5% month on month, which is significantly weaker than the average increase over the years before the Spring Festival. In addition, since 21q4, the month on month increase of rental housing rent has not been maintained in the normal range in the first half of 21 years. With the strengthening of early real estate completion, the supply of rental housing has increased and the room for rent increase has been reduced. In January, the month on month decrease of – 0.2% also continued to be lower than that in the same period of previous years.
The tense situation of China’s coal and steel supply has eased. The fall of coal and steel prices in January led to the decline of PPI as expected. January PPI was – 0.2% month on month, in line with our expectations, down 1.2 percentage points year-on-year to 9.1%. Among them, although the prices of coal and steel have increased in the shock since January, the average monthly price is lower than that in December last year, which is the main factor driving the decline of PPI in January, dropping the overall PPI by – 0.3 percentage points month on month. *** If the policy goal is to balance the profit and loss of thermal power, the annual increase of coal production needs to be higher than that of last year.
Due to the short-term rise of oil price caused by the uncertainty of global crude oil supply in the near future, the growth rate of global crude oil demand may slow down, and the supply growth is expected to become increasingly clear. The oil price may have been at a phased high in the near future, and the decline of CPI industrial consumer goods prices matches this expected direction. The price transmission relationship of crude oil and petrochemical, another main transmission chain in PPI, was still upward in January. At the beginning of the year, the oil price rose moderately, which slightly pushed up the PPI of petrochemical industry chain in January, driving the overall PPI up by 0.1 percentage points month on month. Since late January, the international oil price has soared again due to the decline of us cold winter shale oil production, geopolitical risks and other short-term supply tightening factors, which may maintain about 8.6% under the high base of PPI in February. However, the OPEC + may production plan remains unchanged. In order to curb inflation, the Biden government acquiesces in shale oil production. In addition, geopolitical risks are expected to ease. The probability of oil price decline during the year is much greater than further upward impact. It is expected that the price increase of Petrochina Company Limited(601857) chemical industry chain will also tend to narrow. Since last year, the increase of CPI industrial consumer goods has no longer lagged behind, but changed to keep pace with the increase of PPI. In January, the ring decline of industrial consumer goods was – 0.1%, which was lower than expected. It also matched the general demand for industrial goods, which was difficult to drive the direction of oil price rise again.
According to comprehensive analysis, CPI is expected to rise by about 1.5% in 2022 driven by food prices (it is expected to remain at a low level of 0.9% year-on-year in February), the rise of industrial consumer goods will narrow and the price of service industry will hover at a low level; PPI is expected to increase by about 2.2% year-on-year under the influence of high base, improved coal and steel supply and falling oil prices. The convergence trend of the two may run through the whole year, and the monetary policy will not be directly affected.
