Executive Summary:
In 2021, inflation rose as a whole, but showed an obvious differentiation trend. On the one hand, affected by the high base in the same period in 2020 and the mild recovery of China's terminal demand, CPI only rose moderately, with a cumulative year-on-year increase of only 0.9% in the first 11 months. On the other hand, PPI rose rapidly due to factors such as global economic recovery and increased inflation expectations, contraction of supply of some varieties and base, with a cumulative year-on-year increase of 7.9% in the first 11 months. In addition, PPI is transmitted to CPI through non food items, but its utility is limited. The scissors gap between CPI and PPI continues to expand, weakening the profits of middle and downstream industries.
The fall of global inflation in 2022 is a high probability event. Although the tightening policy can not effectively regulate some supply factors and rigid costs (such as wages), factors such as falling demand, tightening policy and high base number contribute to the decline of inflation. In 2022, China's inflation will continue to be moderate as a whole. It is expected that CPI will rise by 2.2% and PPI will rise by 3.7% year-on-year. In terms of CPI, focus on the possible start of the pig cycle in the second half of the year and the pulling effect of the recovery of the service industry on CPI. In terms of PPI, we can focus on the impact of the epidemic on factors such as the disturbance of the supply chain, the trend of energy prices and the change of labor costs. The differentiation between CPI and PPI tends to ease, and the scissors difference between them will fall to 1.5 percentage points from 7.2 percentage points in 2021. The profits of the middle and lower reaches are expected to recover to a certain extent.
Risk tips: the central bank regulates and controls beyond expectations, food prices exceed expectations, energy prices remain high, trade frictions heat up, financial market fluctuations increase, economic downward pressure increases, the risk of epidemic changes beyond expectations outside China, the risk of overall deterioration of China US relations, the sharp deterioration of the international economic situation, the overseas Black Swan incident, etc.
