Event:
In March 2022, CPI was + 1.5% year-on-year and 0% month on month, while core CPI was + 1.1% year on year and - 0.1% month on month; PPI + 8.3% YoY, mom + 1.1%, ppirm + 10.7% YoY, mom + 1.3%.
Core view:
The epidemic has led to the obstruction of logistics and the rise of energy prices. The month on month increase of CPI in March is more seasonal than that in the previous month. The month on month increase of CPI in March 2022 is 0, which is stronger than - 0.70% of the average value in the same period in the past five years. After deducting food and energy, the core CPI in March was - 0.1% month on month, basically in line with the seasonality (the average value in recent five years was - 0.14%). Fresh vegetables, eggs, grain and edible oil were stronger than seasonality month on month, driving CPI food items stronger than seasonality in March. At the same time, the rise of energy prices led to CPI non food items stronger than seasonality. The price of industrial consumer goods in non food was + 1.1% month on month, and the prices of gasoline, diesel and LPG were + 7.2%, + 7.8% and + 6.9% month on month respectively. In March 2022, CPI was + 1.50% year-on-year, up from + 0.60pcts last month, higher than + 1.30% expected by the market and + 1.20% expected by us. Although the pork price in food still has a strong drag on CPI year-on-year, the year-on-year upward range of fresh vegetables, eggs and grain has increased, hedging the year-on-year downward trend of pork price. At the same time, with the continuation of geopolitical conflict in March, the year-on-year increase of energy price has also driven the increase of CPI compared with the previous month. Overall, the year-on-year increase in CPI in March 2022 was mainly affected by the continuation of geographical conflicts and the intensification of the epidemic in China. On the one hand, the rise in energy prices led to the expansion of the year-on-year increase in CPI non food items. On the other hand, the rise in energy prices, the rise in the prices of international chemical fertilizers and grain and oil, and the obstruction of logistics under the epidemic jointly led to the rise in the prices of fresh vegetables, eggs, grain and oil and other food items. The drag effect of food items on CPI was significantly weaker than that of the previous month. In the future, with the gradual weakening of the drag of pork prices on food items and the gradual rise of CPI tail warping factors from April to June, the development and changes of geographical conflicts and the prevention and control effect of China's epidemic will be the key factors to determine whether CPI will continue to exceed expectations year-on-year in the coming months. Overall, we believe that there is a certain upward risk of CPI continuously exceeding expectations in the second quarter, but it is unlikely to restrict monetary policy by breaking through 3% from April to June.
PPI accelerated upward month on month, and continued to decline year-on-year under the action of tail raising factors: in March 2022, PPI was + 8.3% year-on-year, slightly higher than the market and our expectation of + 8.0%, month on month + 1.1%, and + 0.6pcts, slightly higher than our expectation of + 1.0%. In March 2022, ppirm was + 10.7% year-on-year, compared with -0.5pcts last month, and + 1.3% month on month, compared with + 0.9pcts last month. In March 2022, China's coal price rose, the steel price was relatively stable, and the international oil price continued to fluctuate at a high level under the continuous geopolitical emergencies. In terms of upstream, middle and downstream, the month on month and year-on-year increase of PPI in the upstream is higher than that in the downstream. The PPI of coal, oil and non-ferrous mining industry in the upstream increased year-on-year and month on month, and the PPI of manufacturing industry in the downstream also increased more generally. Generally, it reflects the overall impact of rising energy and commodity prices on industry under the continuous geographical conflict, and the downstream bears greater cost pressure. The continued rise of international commodity prices under the geopolitical conflict this month is the core reason why the decline of PPI is not as expected. Looking forward to the future, we believe that based on the tail raising factor, PPI will still gradually decline year-on-year, but under the development of international geographical conflicts and the fermentation of China's epidemic, the pace of decline of PPI may be slower than previously expected.
