Food and energy drive inflation to rise seasonally, but the external monetary environment and epidemic situation are repeated or hinder the transmission of inflation.
The month on month increase of CPI in March exceeded the seasonality, 0.6 percentage points higher than the average increase in the same period in the previous 10 years. The main driving factors are food and energy prices. The main reason why food prices exceed seasonality is that pork prices hit the bottom and stabilized after falling sharply; Energy prices are related to the rise in international oil prices after the conflict between Russia and Ukraine. Neither of these factors reflects the rising trend of inflation.
In the short term, the Western dumping of reserves and the limited reduction of Russian crude oil production may suppress the rise of oil prices. As the Western sanctions on Russia's energy trade are difficult to form a closed loop, the scale of the United States and its allies selling reserves may even exceed the scale of Russia's production reduction in the short term.
In the long run, the global monetary purchasing power peaked and fell, which may change the trend of international oil prices. From the historical data, the euro exchange rate is closely related to the oil price cycle. The recent depreciation of the euro and the yen is depleting the global excess purchasing power measured in dollars.
The assumption that inflationary pressure will eventually be transmitted from upstream raw materials to end consumer goods prices may face revision. Under the condition that the purchasing power of external money drops and domestic demand is repeatedly affected by the epidemic, the inflation pressure in the upstream may be digested by the middle and lower reaches gently, rather than forming a terminal sharp inflation. As of March this year, China's non food CPI index has increased by about 18.8% compared with the end of 2010, while the PPI index has increased by about 10.8% in the same period. This digestion space may exist, but we need to continue to give financing support to middle and downstream enterprises to ensure the safety of their capital chain.
China's real economy is tightening faster than expected, and there is an upward risk of policy tightening.
