When the scissors difference narrows, it often corresponds to the economic downturn and the growth rate of enterprise revenue declines. Since 2000, the six round scissors difference has narrowed, which are 2000.8-2002.2, 2004.12-2007.8, 2008.9-2009.8, 2010.6-2012.8, 2014.9-2015.8 and 2017.3-2020.4 respectively. When the scissors gap between PPI and CPI narrows in each round, it is dominated by the decline of PPI. China’s economy is mainly driven by industry, and the decline of PPI often corresponds to the decline of economic prosperity.
The large difference between PPI and CPI is an important reason why the two trends are not synchronized. Food is the main driver of CPI, while the means of production mainly affects the trend of PPI. About 72% of the means of production in the sub item of PPI has no direct upstream and downstream relationship with CPI, while about 28% of the means of living in PPI is only related to about 70% of consumer goods in CPI. Service items are only included in CPI statistics, not in PPI statistics, and the price of imported consumer goods in CPI is not affected by PPI. There are four main ways of transmission from PPI to CPI, indirect transmission: PPI means of production – PPI means of life – CPI consumer goods; Direct transmission: PPI means of living CPI consumer goods; Substitution function: PPI sub item – demand for substitutes – CPI sub item corresponding to substitutes; Income transmission: PPI – profit – personnel income – terminal consumption.
Ppi-cpi transmission was smooth before 2013, while ppi-cpi price transmission was blocked after 2013 because China gradually shifted from incremental economy to stock economy. In the final analysis, price transmission was smooth only when there was demand support. There are two types of scissors gap narrowing: 1) the scissors gap narrowing with PPI down and CPI down means that the upstream and downstream price transmission is smooth. In the first four rounds of the narrowing period of the scissors difference, PPI and CPI decreased, mainly due to the relationship between advance and lag and the greater fluctuation and decline of PPI, resulting in the narrowing of the scissors difference; 2) The narrowing of the scissors gap with downward PPI and stable or even rising CPI means that the upstream and downstream price transmission is blocked. One possibility is that CPI rises behind the rise of PPI, and PPI has fallen from a high level at this time. The other way is to make PPI go down quickly after ending the stable trend, while CPI remains stable or rising.
Before 2013, the proportion of profits in the upper and middle reaches changed one after another, the downstream demand was strong, and the proportion of profits increased steadily; After 2013, the proportion of upstream and downstream profits changed, the bargaining power in the middle reaches increased, and the proportion of profits continued to increase. Before 2013, the profit transfer in the upper and middle reaches was obvious, the proportion of downstream profits increased steadily, and the downstream gross profit margin was basically stable or slightly increased. In addition to the overall expansion stage of the downstream, the downstream product prices were more viscous. When the scissors difference narrowed and the cost decreased, the product prices were not easy to reduce. After 2013, the profit transfer between upstream and downstream was obvious, and the proportion of midstream profit increased steadily. Because the competition was fierce after years of downstream expansion, the bargaining power of midstream in the industrial chain increased. In addition, the proportion of upstream profits fluctuates in the same direction as oil prices, and the transfer direction of upstream, midstream and upstream and downstream profits is closely related to commodity prices represented by oil prices.
When the scissors gap is narrowed and the liquidity is loose, the stock market performs better, and the consumption growth is relatively high on the whole. Only when the monetary policy is relaxed and the ppi-cpi scissors are narrowed, the stock market performs better, and when the liquidity is tightened and the ppi-cpi scissors are narrowed, the stock market tends to be worse. When the scissors difference narrows in each round, the share price of the consumer sector rises relatively high. The main reason is that when the scissors gap narrows, the income of the whole industrial chain decreases with the cost, and the downstream demand is relatively supported. Especially in the stock economy after 2013, downstream profits benefited significantly, the scissors gap narrowed, and the growth of consumer stocks was also higher.
The current round of narrowing of the scissors difference is similar to that after 2017, due to the fading of the impact on the supply side. It is suggested to pay attention to industries with supported demand, including price increase of consumer goods, special equipment and other mechanical equipment, as well as motors and electrical equipment, furniture and small household appliances on the export chain. Historically, before each round of scissors difference narrowed, M1 was often tightened in advance. Since the beginning of 2021, M1 has continued to decline year-on-year. At present, the growth rate of PPI has reached a historically high value. Under the pressure of policy to ensure supply and stabilize prices, there is insufficient action on PPI, while the economic recovery on the demand side is still weak. It is expected that the downward trend of PPI will drive the convergence of ppi-cpi scissors difference next year. Taking history as a mirror, in the narrowing stage of ppi-cpi, in addition to the promotion of its own industrial logic, the share price of consumer industries with strong demand and increased gross profit margin increased better.
Risk tip: the taper process of the Federal Reserve exceeded expectations, the economic downturn and weak demand, and the epidemic broke out again
