CPI rose higher than expected. In March, CPI rose to 1.5% year-on-year higher than expected, unchanged from the previous month. Generally, after the Spring Festival, the CPI should decline significantly month on month, and the CPI in March this year is higher than the normal seasonal law. The information reflected in the CPI data mainly includes the following points: first, high oil prices are the main factor leading to the upward trend of CPI than expected. Second, affected by the rise in international grain prices, China's grain prices have also increased, but its impact on food items has been offset by the decline in pork prices. Third, China's end consumer demand remains weak, and the core CPI remains low.
China's CPI will not be too high. At present, most overseas countries have experienced higher inflation than expected, and China's CPI has also shown an upward trend. Under the background of high inflation and high oil prices, will China also hit the bottom in the future? We believe that this possibility is very small at present. The main reasons are as follows: first, China has sufficient grain reserves and the rise of grain prices will be relatively mild. After 2012, China's grain inventory has increased significantly. At present, the inventory of the three main grains is much higher than that of a decade ago. Therefore, although the international grain price has increased significantly in the past two years, China's grain price is still quite stable. Second, the time when oil prices had the strongest impact on CPI may have passed. Third, the pig cycle is difficult to reach a high level in 2019. 2019 is the extreme capacity reduction caused by African swine fever, and the decline of pig supply is unprecedented. The current pig cycle is a normal cyclical fluctuation. At present, the de stocking degree of fertile sows is far less than that before 2019. Therefore, we believe that the current pig cycle is more similar to that in 2011 and 2016, and the rising height is limited. Fourth, the impact of the epidemic on China's demand side is greater than that on the supply side, which brings deflationary pressure rather than inflation to the core CPI. Based on the above four points, we believe that although CPI will continue to rise in the future, the pressure is controllable, and the annual high rate will probably not exceed the policy target of 3%.
PPI has short-term upward pressure, but it will still decline in the long term. In March, PPI rose by 8.3% year-on-year and 1.1% month on month. China's PPI is more vulnerable to import impact. Under the background of high industrial raw materials caused by geopolitical conflict, PPI has a strong upward momentum again. The PPI data in March has the following characteristics: first, the rise of oil prices contributed to the main increase of PPI in March. Second, price increases are concentrated in upstream industries, and price transmission is still not smooth. PPI still had upward pressure in April. The transmission from international oil price to PPI of relevant industries in China lags behind for one month. The international oil price continues to rise sharply in March, which will give China the impetus to continue to rise in April. However, in the long run, with the decline of global economic growth and the rapid rise of China's PPI base, PPI will continue its downward trend year-on-year.
Risk tip: the escalation of geopolitical conflict has led to another surge in oil prices.
