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In November 2021, the year-on-year CPI was 2.3%, and the year-on-year PPI was 12.9%.
Ping An View:
In November, CPI rose by 2.3%, up 0.4% month on month, stronger than the seasonal law. It is mainly driven by food and energy projects and dragged down by service related projects. Specifically: first, the sub item of food, tobacco and alcohol increased by 1.6 percentage points month on month, which had the greatest impact on CPI. 1) The pork project rose by as much as 12.2%, and the bottom rebound of pig prices has become an important driver of the upward CPI. 2) Fresh vegetables, fresh fruits and eggs rose by 6.8%, 4.3% and 3.0% respectively, exceeding the seasonal upward range, which also boosted the upward trend of CPI food items. Second, energy related projects have contributed to the upward CPI. Vehicle fuel increased by 3% and hydropower fuel increased by 0.2%, which is directly related to the high energy price. Third, service related items are drag factors. The multi-point spread of the epidemic in China has suppressed the recovery of service consumption, and the service price has decreased from 0.1% last month to 0.3%.
The year-on-year reading of PPI in November was 12.9%. The coal, black and non-ferrous metal industries jointly promoted the decline of PPI from the historical high. 1) Among the means of production, the mining industry is mainly dragged down by coal mining and washing industry and ferrous metal mining and dressing industry, while the oil and gas mining industry still tends to rise; The raw material industry continued to rise month on month in November, mainly driven by the high fluctuation of international crude oil and natural gas prices; PPI in the processing industry decreased month on month, as the effect of maintaining supply and stabilizing price in the metal industry appeared. 2) In terms of means of living, the prices of food, clothing and general daily necessities rose month on month, boosted by the demand outside China, and the prices of durable consumer goods continued to be depressed under the influence of the weak consumer demand for large items. 3) In terms of industries, PPI of coal and metal related industries mostly fell month on month in November. Industries with higher month on month growth were concentrated in the petrochemical industry chain, and downstream consumer related industries also showed signs of price rise.
Looking back, there is no need to worry too much about inflation. In terms of CPI, the upward range may be moderate. The recent rebound in pork prices and high vegetable and fruit prices have disturbed food projects, and the prices of crude oil and natural gas have disturbed energy related projects. However, the core CPI is still dragged down by the downturn in demand, and the margin of subsequent disturbance factors will tend to weaken. It is expected that the probability of CPI “breaking 3” in the first half of 2022 is small. In terms of PPI, the year-on-year growth rate tends to fall. In November, under the control of the policy of “ensuring supply and stabilizing price” of thermal coal, the adjustment of coal and metal industry chain prices led to the decline of PPI. We expect that the oil price center will tend to move down in the future, which will also restrain the rise of petrochemical industry chain prices. Meanwhile, considering that the tail warping factor will decline rapidly in 2022, the year-on-year trend of PPI is likely to decline.
In general, the factors that promote the decline of PPI may continue, while the subsequent probability of the factors that promote the acceleration of CPI upward tends to weaken. The central bank announced a comprehensive reduction in the reserve requirement on December 6, 2021 and lowered the small refinancing interest rate for agricultural expenditure on December 7, 2021, which also confirmed the weakening of the impact of “inflation” on the operation of monetary policy. With the downward movement of the overall inflation level, the room for loose monetary policy in 2022 will also be opened and return to the track of “flexibility and moderation”
