Summary:
In the previous reports "2022: the year of CPI reversal" and "don't underestimate the resilience of corporate profits in 2022", we have repeatedly stressed that the prosperity of the consumer industry is expected to improve significantly, and the downstream consumer goods industry will usher in better allocation opportunities. This week Baijiu, food, household electrical appliances and other subdivision plates continued strong, initially confirmed our inference. We believe that the market style will further switch to consumption in the future, helping the "return of the king" of consumer stocks.
First, the scissors difference between PPI and CPI is reversed. Since this year, the scissors difference between PPI and CPI has continued to rise. In October, PPI reached 13.5% of the epic level, while CPI remained moderate, with a year-on-year increase of only 1.5%, leading to the expansion of the scissors difference between PPI and CPI to a historical high of 10.6%. The rise of commodity prices has increased the cost pressure of downstream industries and reduced the profit space of downstream consumer goods industries. However, in November, the scissors gap between PPI and CPI fell for the first time in the year. On the one hand, thanks to the increased implementation of China's industrial product supply and price stabilization policy, the year-on-year increase of PPI fell to 12.9%; On the other hand, supported by food items, the year-on-year growth rate of CPI continued to rise, recording 2.3%. The scissors difference in the current period was 10.6%, down 1.4 percentage points from the previous month, which means that the downstream cost pressure is gradually alleviated and the industry prosperity is expected to continue to improve. Looking back on history, the consumer sector performed well during the period when the scissors gap between PPI and CPI narrowed, such as 2007-2008 and 2017-2019.
Second, downstream industries have raised prices, and PPI means of living have increased significantly. Through the financial reports of Listed Companies in the third quarter, it can be found that under the increasing pressure of raw materials, packaging materials and energy costs, the gross profit margin of the two representative consumer goods industries of food and condiment decreased significantly compared with that before the epidemic. Since September, listed companies of consumer goods have started a round of price rise. From the trend of PPI means of living this month, the price rise of downstream industries has been reflected. PPI means of living increased by 0.4% month on month, accelerating compared with September and October. The PPI of food, clothing and general daily necessities exceeded the previous two months, of which the increase of food reached 0.8%. At present, some products are still raising prices one after another. With the top-down price transmission, PPI means of living is expected to maintain positive growth next year. Before the resumption of trading, there was a wave of price increase. After the price increase of listed companies, the gross profit margin ushered in an increase after 1-2 quarters.
Third, the introduction of policies to promote consumption is expected to be accelerated to help restore social stability. In December, the Politburo meeting proposed to "implement the strategy of expanding domestic demand, promote the sustained recovery of consumption, actively expand effective investment and enhance the endogenous driving force of development", indicating that stimulating consumption is one of the key tasks next year. On December 8, the State Council Information Office held a regular policy briefing of the State Council, indicating that it would implement a subsidy for furniture and home decoration to the countryside and a new round of automobile to the countryside. We expect that local promotion fee policies are expected to be launched one after another to help residents' consumption recover stably.
Risk factors: vaccine failure caused by epidemic variation; China's policy exceeded expectations.
