Event: CPI in March was 1.5% year-on-year, expected to be 1.3%, and the previous value was 0.9%; PPI was 8.3% year-on-year, expected to be 8.1%, and the previous value was 8.8%.
Core view: CPI rebounded, but core CPI remained flat or decreased for five consecutive months, indicating that domestic demand is still weak; PPI was stronger than expected year-on-year and the month on month increase expanded again, mainly due to high oil prices, but the risk of PPI turning upward has been alleviated recently. On the whole, the world is ushering in great stagflation, while China's pressure of "stagflation" is greater than "inflation". The top policy priority is still to make every effort to stabilize growth, and there are five major concerns in the short term.
1. CPI rose higher than expected year-on-year, and non food items were the main support. Month on month: food items changed from up to down, mainly due to the seasonal decline in food prices after the Spring Festival; The rise of non food items narrowed, and the seasonal decline of service prices was a drag, but the performance of industrial consumer goods was strong. Specifically, the year-on-year increase of CPI in March expanded by 0.6 percentage points to 1.5%, of which the tail warping and new price rise factors affected 0.4 and 1.1 percentage points respectively; The year-on-year decline of food items narrowed by 2.4 percentage points to 1.5%, affecting CPI by about 0.28 percentage points; The year-on-year increase of non food items increased by 0.1 percentage points to 2.2%, affecting the increase of CPI by about 1.77 percentage points; Core CPI was flat at 1.1%.
The food item chain ratio changed from rise to fall, but it was significantly stronger than seasonality, and the prices of grain and vegetables were the main support. In March, CPI food items fell by 1.2% from an increase of 1.4%, which was stronger than seasonality (the average value in the same period of 20162019 was down 2.2%). Focus on Shenzhen Agricultural Products Group Co.Ltd(000061) price differentiation. Among them: due to the decline in demand after the festival, the pig stock is still high and the supply is sufficient, and the pork price decreased by 9.3% month on month, the lowest in the same period in history; However, due to the rise of international food prices caused by the conflict between Russia and Ukraine, the epidemic situation in some areas was sealed and controlled, and domestic materials were hoarded. Road transportation was blocked and supply was limited. The food price rose by 0.5% month on month, hitting a new high in the same period of nearly 10 years (the average value in the same period of 20162019 was reduced by 0.02%); Vegetable prices rose 0.4% month on month, the second highest in the same period in recent 10 years.
The growth of non food items fell by 0.1 percentage points to 0.3% month on month, which was stronger than seasonality (the average value decreased by 0.2% in the same period of 20162019), but the structure was differentiated. On the one hand, due to the drop in demand after the Spring Festival and the repeated epidemic in many parts of the country, the service consumption price has changed from flat to 0.2%, especially the travel related consumption has decreased significantly, and the consumption price of services such as air tickets, film performances, transportation leasing and tourism has decreased by 2.6% - 10.0%. On the other hand, due to the sharp rise in energy prices caused by the conflict between Russia and Ukraine, the month on month increase in the price of industrial consumer goods expanded by 0.3 percentage points to 1.1%, of which the prices of gasoline, diesel and liquefied petroleum gas increased by 7.2%, 7.8% and 6.9% respectively, affecting the increase of CPI by about 0.29 percentage points.
2. PPI was stronger than expected year-on-year, and the month on month increase also expanded again, mainly due to the sharp rise in international oil prices caused by the conflict between Russia and Ukraine, the steady growth pushed up, and China's commodity prices also rose. Among them, most of the PPI industries rose month on month, and the increase expanded except for clothing, especially the price of upstream mining and raw materials; PPI in most of the sub sectors increased. Specifically, the year-on-year increase of PPI in March fell by 0.5 percentage points to 8.3%, of which the tail warping and new price rise factors affected 6.8 and 1.5 percentage points respectively, and the month on month increase of PPI expanded by 0.6 percentage points to 1.1%.
In terms of production and means of living, the transmission of price rise from the upstream to the downstream has been strengthened. In March, the month on month increase in the price of means of production expanded by 0.7 percentage points to 1.4%, mainly due to the sharp rise in the prices of crude oil, coal and other bulk commodities; The month on month increase in the price of means of subsistence expanded by 0.1 percentage point to 0.2%, the second highest in the same period in recent 10 years, indicating that the transmission of upstream price increases to the downstream has been strengthened.
In terms of seven industries, PPI rose month on month, and the increase was expanded except for clothing. The increase in the upstream was significantly greater than that in the middle and downstream. Specifically, the prices of upstream mining and raw materials rose by 3.5 and 1.0 percentage points to 4.8% and 2.9% respectively compared with the previous value; The central processing industry, downstream food, general daily necessities and durable consumer goods rose by 0.3, 0.3, 0.2 and 0.1 percentage points to 0.4%, 0.5%, 0.4% and 0.0% respectively compared with the previous value, and the downstream clothing fell by 0.1 percentage points to - 0.2% compared with the previous value.
Divided into 40 industrial industries: most of the month on month growth of the subdivided industries rebounded, among which the growth of crude oil industry chain, nonferrous metals and coal increased significantly, pointing to the intensification of the conflict between Russia and Ukraine in March, the expected warming of steady growth and the cold wave weather. Specifically: 1) geopolitical factors drive the rise of international oil prices. In March, due to the conflict between Russia and Ukraine and the intensification of European and American sanctions against Russia, the price of Brent crude oil increased by 19.5% month on month, driving the month on month increase of PPI oil and gas exploitation, fuel processing, chemical industry and chemical fiber industry by 3.7, 2.9, 0.8 and 0.9 percentage points to 14.1%, 7.9%, 1.8% and 2.0% respectively. 2) Nonferrous metal prices continued to rise. In March, LME copper and aluminum prices rose by 3.0% and 8.5% month on month respectively, driving PPI nonferrous mining and nonferrous smelting to rise by 0.1 and 0.7 percentage points to 1.5% and 2.7% month on month respectively. 3) Coal prices rose significantly again. Due to the cold wave in March, the increase of residential power consumption and the supply guarantee measures, the coal supply tilted to Changxie coal, resulting in a sharp rise in the market coal price. The q5500 power coal price rose 39.7% month on month in March, driving the chain growth rate of PPI coal mining and dressing industry to rise by 4.9 percentage points to 2.5%. 4) Steel prices rose slightly and the upstream and downstream of the steel industry chain were divided. In March, the spot price of rebar increased by 2.1% month on month, driving the increase of PPI black smelting industry by 0.7 percentage points to 1.4%, but the increase of PPI black mining upstream of the industrial chain fell by 0.8 percentage points to 4.2%.
3. Outlook: "CPI up and PPI down" is still the benchmark situation in 2022. The decline of oil price drives PPI to turn up, and the risk is alleviated
CPI: according to high-frequency data, the decline of pork price narrowed to 0.2% month on month in the first week of April, the increase of egg price expanded, the increase of vegetable price narrowed, and the prices of fruits and aquatic products increased from decline to 6.0% and 3.6% respectively. It is expected that the CPI food sub item may rise slightly month on month in April. In non food items, the sub item support related to oil price may be weakened, and the service price may rise slightly, but the impact of the epidemic should be weaker than seasonal. Therefore, it is expected that the CPI in April may be flat month on month, flat or slightly upward year-on-year. Throughout the year: the CPI is expected to be low before and high after, and the range depends on pig depolymerization, epidemic situation and oil price. Under the benchmark situation, the annual center may be about 2.2%.
PPI: according to high-frequency data, in the first week of April, Nanhua industrial products index rose 1.8% month on month, CRB spot index rose 2.1% month on month, crude oil and coal prices fell 7.7% and 12.7% month on month respectively, and rebar prices rose slightly by 2.3%. In the future, considering the loose real estate, infrastructure development and other factors, it is expected that the PPI may still rise slightly month on month in April, but the increase should be significantly narrowed. Superimposed on the rise of the base in the same period last year, the PPI in April should continue to fall year-on-year. For the whole year: according to the previous judgment, the energy price is still the biggest uncertainty. Under the benchmark situation, if the annual oil price center is maintained at about US $95 / barrel (as of April 8, the average oil distribution price this year is US $98.4 / barrel), the superposition of China's bulk price is generally controllable, and the PPI center is expected to be about 4.3% in 2022.
4. Short term focus: Global stagflation risk, epidemic disturbance, conflict between Russia and Ukraine, infrastructure development & loosening of real estate and upstream and downstream transmission of profits
Alert to the risk of global stagflation: overseas, the US CPI in February was 7.9% year-on-year, a new high in recent 40 years; In March, the eurozone CPI increased by 7.5% year-on-year, also reaching a new high since the data were available. From the perspective of China, the core CPI has been flat or decreased for five consecutive months since October last year; Superimposed with repeated local epidemics, the PMI fell across the board in March, indicating that China's economic boom is still weak. It is expected that the economy will "open high" from January to February and "go low" from March to April. It continues to be suggested that in view of the high global energy prices and the expectation of global economic slowdown, the risk of global stagflation has increased. Among them, the United States is closer to "inflation without stagnation" and China is closer to "stagnation without inflation".
Impact of the epidemic on logistics and supply chain: in the previous report, we pointed out that this round of epidemic may disturb the supply of logistics and some industries: on the one hand, the logistics in Northeast China and Yangtze River Delta has decreased significantly since March; On the other hand, the prices of key vegetables and fruits in March were stronger than those in the same period of previous years, and further rose in the first week of April, which should be related to factors such as the closure and control of the epidemic situation, the hoarding of domestic materials and the obstruction of road transportation in some areas
Russia Ukraine conflict: at present, the sanctions imposed by Europe and the United States on Russia are still increasing, the negotiations and wars between Russia and Ukraine are continuing, and the impact on the global economy, oil price and China's inflation is still uncertain. In the short term, we still need to pay attention to the progress of negotiations, European and American sanctions and oil price. For relevant scenario assumptions and impact calculation, please refer to the previous report vigilance against global stagflation - also comment on prices in February.
Infrastructure development & loosening of real estate: real estate and infrastructure are the main drivers of stable growth at present, which will support the upstream mining and raw material demand, resulting in the downward slope of PPI may be slower than expected, and the follow-up will focus on the high-frequency performance of the real estate chain and infrastructure chain.
Upstream and downstream transmission of profits: it continues to suggest that in view of the recent rise in bulk prices, the impact of the epidemic on consumption and other factors, the transmission range and time of corporate profits from upstream to midstream and downstream this year may be slower than expected. We expect that the proportion of short-term upstream profits will remain high (e.g. higher than 50%), and the actual improvement of middle and downstream profits remains to be seen.
Risk tip: the change of epidemic situation and the strength of policies exceeded expectations.
