Russia's oil and gas embargo, the shadow of stagflation began to appear in 1973. On March 8, 2022, the United States and Britain announced a ban on the import of Russian oil, gas and other energy products, and the Brent crude oil futures price once stood at $130 / barrel. Considering the possible further expansion of the scope of sanctions and Russia's important position in the global commodity market (Figure 1), other commodity prices are also ready to move.
How "tragic" was the impact in 1973? After the outbreak of the fourth Middle East war in October 1973, OPEC imposed an oil embargo on major European and American countries supporting Israel. The global oil supply fell by 5 million barrels / day for five months, and the oil price rose more than four times. As a direct result, the developed economies fell into stagflation from 1974 to 1977. Among them, the central economic growth center of the United States halved (from 5% to less than 3%), and the average annual CPI and unemployment rate exceeded 8% (Figure 2).
Compared with 1973, this time the United States is more confident, Europe is the worst, and China's "steady growth" will face pressure. Compared with the 1970s, the United States has become an oil and gas exporter and has more initiative in standby oil sources. In addition to urging OPEC to increase production, lifting the oil embargo on Iran and Venezuela will also help alleviate the impact of the absence of Russian crude oil. However, the epicenter of this time is in Europe. The price of natural gas, an important energy pillar of the EU, nearly doubled in two weeks. It is only a matter of time before Europe enters stagflation.
For China, the direct impact of the conflict between Russia and Ukraine is controllable, and the indirect economic impact is mainly concentrated in: first, the security and stability of the supply chain (especially oil and Shenzhen Agricultural Products Group Co.Ltd(000061) etc.); Second, the impact of rising commodity prices on China's inflation. For the transmission of the latter, although the inflation data in February 2022 did not fully reflect this impact, it can show some clues.
The "three risks" of PPI are gradually coming true. In our previous report "three strong wind danger points of PPI's" resurgence ", we mentioned that the biggest risk facing PPI in 2022 is the continuation of the bull market in commodities:" oil price stands at $100 / barrel, copper price stands at $11000 / ton "and the upward pressure on black commodities caused by supply contradiction. The escalation of the conflict between Russia and Ukraine and the consequent sanctions against Russia are accelerating the scene. PPI grew by 8.8% year-on-year in February. The main driving force behind exceeding market expectations is the crude oil and nonferrous metals related industries (Figure 3).
However, the complexity of the Russia Ukraine incident makes the rhythm of subsequent commodity price changes full of uncertainty. Taking crude oil as an example, the strategy of Europe and the United States to sanction Russian oil and gas exports is to limit Russian exports and try to promote OPEC, Iran and Venezuela to release production capacity and output. The rhythm of Russia Ukraine events may be crucial.
If the standoff between Russia and Ukraine continues, the sanctions against Europe, America and Russia will continue. Then, due to the lack of oil and gas production in Russia, the global crude oil supply and demand will remain tight, and the crude oil will continue to remain at a high level of more than $100 / barrel. If the Russian Ukrainian incident eases after one or two months, and the restrictions on Russian oil and gas in Europe and the United States are relaxed, this may lead to the obvious superposition of the short-term increase in crude oil supply, the release of sentiment, the volatility of oil prices will intensify, and the short-term may fall sharply or even fall below US $100 / barrel. This will lead to different rhythms of year-on-year changes in PPI in 2022 (Figure 5).
The transmission of commodity price shock to CPI lags significantly, and there is an obvious cushion. We calculate the impact of the rise in crude oil on the final consumer price of residents through the input-output table. We expect that the impact of the rise in crude oil price of 10% on the consumer price of residents will be about 0.6 percentage points. This transmission process will be further weakened by China's refined oil pricing mechanism (US $130 / barrel is the upper limit) and residents' adjustment of consumption habits (such as taking more public transport or buying new energy vehicles) (Figure 6). In addition, from the perspective of service and non commodity consumption, consumer demand remains weak in 2022, which has also become an important reason to limit the rise of CPI.
Risk tip: the epidemic spread exceeded expectations, and the effect of policy hedging against economic downturn was less than expected.
