In the first two months of the year, the price performance continued the main logic of the fourth quarter of last year, with slight two changes. First, the PPI in February was + 0.5% month on month, higher than the previous two months (in December last year and January this year, the PPI was - 1.2% and - 0.2% month on month respectively). Second, the PPI structure indicates that the profits of middle and downstream processing industrial enterprises have improved.
The conflict between Russia and Ukraine disrupted global commodity pricing, and overseas economies were trapped in high inflation. At present, we focus on China's inflation, and the key is to track two issues. First, what kind of economic logic does current inflation portray? The second question is, in the face of overseas imported inflation, what policies China has to deal with and how China's inflation will behave in the end.
The first question is, what kind of economic subject logic is portrayed by current inflation?
Inflation is the systematic summation of prices in the whole society, which can reflect the supply and demand of industries and the profit cutting pattern between different industries. Since the fourth quarter of last year, the narrative given by China's inflation is that the economy generally continues the main deductive logic of the fourth quarter of last year. That is, external demand is strong and tough, and domestic demand rebounds. The improvement of domestic demand mainly comes from two driving forces, the large amount of infrastructure investment and the liberalization of industrial production supply constraints in the third quarter.
At the beginning of the year, the economy saw a slight turnaround, but now it has encountered another heavy pressure - imported inflation. The conflict between Russia and Ukraine continued to play out, exacerbating the upward pressure on global bulk energy prices. The conflict between Russia and Ukraine has pushed up global inflation through four mechanisms, which is also the imported inflation pressure faced by China. These four mechanisms are conducted through energy, black, colored and Shenzhen Agricultural Products Group Co.Ltd(000061) respectively.
Second, in the face of overseas imported inflation, what policies does China have to deal with it?
We believe that in the face of imported inflation, China may have four policy options to hedge against the rapid rise of upstream prices. First of all, we can supervise the prices of key commodities and "de finance" important materials to curb market speculation. Secondly, the export of some commodities is restricted by increasing export tariffs. Thirdly, moderately liberalize the supply of Chinese goods and encourage the production of basic raw materials; Finally, take precautions, ensure the import of key materials, increase the import quota of some varieties, and respond in advance to the possible shortage of international materials. These four points can be simply summarized as "increasing China's supply, increasing imports, restricting exports and curbing speculative demand".
In the face of imported inflation, China's price impact may be weaker than that of European and American economies.
The transmission of imported inflation to China is mainly conducted through energy, black, colored and Shenzhen Agricultural Products Group Co.Ltd(000061) but fortunately, China has strong administrative execution ability in price control. In terms of cost, coal and electricity price are guided by administration, and crude oil weakens its transmission process through administrative means at high prices; In terms of production, after the contraction of production in the third quarter of last year, the policy was corrected in time, and the output of coal chemical industry, nonferrous metals, iron and steel gradually recovered; In terms of demand, there are restrictions on China's commodity exports, and speculation in key materials is strictly monitored; Therefore, the impact on industrial products may be weaker than that of European and American economies Shenzhen Agricultural Products Group Co.Ltd(000061) on the one hand, China is basically self-sufficient in grain, and the export of urea and other materials is limited, so there is no need to worry too much.
Risk warning: crude oil supply exceeds expectations; The conflict trend exceeded expectations; The game among countries exceeded expectations.
