Key points of the report:
The price data seems to begin to return to the mean, the low CPI is accelerating upward, and the high PPI is converging downward.
Indeed, the price reduction only occurs in the middle and upper reaches. The prices of mining, raw materials and processing industries are falling, while the prices of means of living and CPI are accelerating. To some extent, this is related to the policy of ensuring supply and stabilizing price.
In the future, PPI will go down all the way, while CPI will go up all the way:
1) Policy is only a trigger point for PPI adjustment. The decline of PPI is determined by cycle. Regardless of policy factors, the current rise of CRB is also downward, which is related to the rapid flattening of global currency;
2) The pig cycle is an independent and main clue for the initiation of CPI. Affected by the downturn of pig food ratio, the scale of fertile sows is also in a rapid flattening process, and fertile sows began to go to the fence after June;
3) The transmission of PPI to CPI non food continues. At present, the scissors difference between PPI and CPI non food has reached a record high. Even if PPI falls, CPI non food does not fall so quickly.
Judging from the latest CPI data, these changes seem to be taking place:
1) The year-on-year decline in pork prices has shrunk significantly, and the month on month increase has reached 12.2% (the highest since 2019);
2) Non food prices are also rising. Of course, it must be admitted that this is related to the rise in fuel prices caused by the acceleration of crude oil prices.
Of course, this is within the market's expectation. What can exceed the expectation may be the elasticity of CPI in the future:
1) From the month on month performance of this round of pig cycle, it seems to be more fierce than that in 2018. This time, pork has increased by more than 25% month on month in less than half a year;
2) The short-term negative effect of PPI decline on non food prices is limited. Empirically, in addition to PPI, non food prices will also be affected by food prices. If the high price in the upstream falls, but the food price rises, the non food price may repeat the trend in 2017 (the high price lingers for more than a year).
In this way, the range of 4% - 5% is the first target of CPI. Once the price of daily necessities rises, the inflation situation will be more complex, and the space for monetary easing is very limited; Second, profits will gradually flow from the upstream to the downstream, and the price rise of consumer goods may be one of the directions of equity market allocation in the coming year.
Risk tip: monetary policy exceeded expectations and economic recovery exceeded expectations
