As global inflation intensifies, what driving logic should China pay attention to?
Global inflation, why is China "alone"? It is directly due to the different composition, and the root is the difference between supply and demand
Global inflation has intensified, while China's CPI inflation remains low, which is directly due to the different composition. After the epidemic, inflation in major global economies hit new highs one after another. In January, the US CPI rose to 7.5%, while China's CPI fell to 0.9%. The sharp contrast between CPI inflation in China and the United States is directly due to the different trends of CPI composition and leading factors in the two countries. Energy related and housing are the main weight items of CPI in the United States, with the largest increase in the past year; Pork and service prices are the main drag on China's CPI. Although the weight of housing in China's CPI is not low, the fluctuation is very small.
The root of the difference in CPI inflation between China and the United States lies in the "dislocation" of economic demand and the difference in the impact of supply. The "big release" of the US currency and the "throwing money" of the finance have led to a rise in residents' income and strong consumer demand; China's policies are relatively restrained and give priority to ensuring people's livelihood and production. Consumption is restrained to a certain extent by the decline in demand and the lack of scenes, especially the consumption related to offline activities. In addition, unlike overseas countries, China adopts strict price limits on household electricity, natural gas and other livelihood materials, and the pig price, which has a great impact on CPI, is also significantly dragged down by a large amount of supply.
Late inflation or low inflation? The reversal or strengthening of supply logic may push up inflationary pressure
With the clearing of pig supply, the restart of a new round of pig cycle may accelerate the end of "low inflation". After the African swine fever, the sharp rise in the cost of pig breeding and the sharp expansion of industrial capital expenditure have led to longer and larger losses of breeding enterprises; After the covid-19 epidemic, the sharp rise in the cost of raw materials and the weakening demand for pork have further increased the pressure on pig clearance, which means that this round of pig clearance cycle will be more "tragic". However, once cleared, the surviving farmers will have a stronger incentive to raise prices; If the marginal demand improves, the elasticity of pig price may be greater.
Energy and other costs remain high, which may further strengthen the dominance of cost side pressure. The cost pressure of raw materials in the early stage has continued to be obvious, some durable goods with relatively low demand price elasticity have increased significantly, and CPI sub items such as transportation fuel and household appliances have repeatedly reached new highs. Under the tight balance between coal supply and demand, industrial and commercial electricity prices have been raised successively in various regions, and the proportion of rising during peak hours in many regions has exceeded 50%; At the same time, with the liberalization of overseas epidemic prevention and control, the demand for crude oil increases and the supply elasticity is limited, or the oil price remains high, further pushing up the pressure on the cost side.
What is the deductive path of inflation in 2022? CPI inflation exceeded expectations, which may be a potential risk in the second half of the year
With the scene restoration, the inhibition or weakening of consumer demand on inflation has even become an important "driver" of inflation. The current shortage of consumption is not only a drag on Residents' income and Consumption Willingness, but also closely related to the repeated epidemic and the lack of consumption scenes, especially for social groups with large consumption drag. With the increasingly accurate epidemic prevention and control and the more calm response of micro subjects, the interference of repeated epidemic on offline activities tends to be weakened, and the consumption scene is gradually repaired; If the epidemic prevention and control is fully liberalized, the demand driven by scene repair will improve or become more obvious.
Looking ahead, CPI inflation is periodically higher than expected, which may be a potential risk in the second half of the year. The "lard resonance" brought about by the change of supply and demand, the accelerated dominance of cost side pressure, and the "compensatory" price rise driven by the repair of service demand may become an important "driver" of inflation exceeding expectations. Under the neutral scenario, the CPI inflation rate may pick up gradually from February, rise to more than 2.5% in the third quarter, and the peak in the year may be close to 3%; Under the pessimistic scenario, CPI inflation may rise to more than 3% in the middle of the year, which may restrict monetary policy.
Risk tip: the supply of raw materials was less than expected, and the pig price rebounded sharply.
