Matters:
In March 2022, the year-on-year CPI was 1.5%, and the year-on-year PPI was 8.3%.
Ping An View:
In March, the CPI increased by 0.6 percentage points year-on-year compared with the previous month, and the month on month performance was stronger than the seasonal law; Excluding food and energy, the core CPI was flat year-on-year. The month on month changes of food and energy related items are stronger than the seasonal law. First, although pork prices fell sharply, the month on month changes of food items such as grain, oil, eggs and fresh vegetables were stronger than the seasonal law. Second, the prices of energy and industrial consumer goods excluding energy rose more than seasonally, boosted by the rise of oil prices and costs.
In March, the year-on-year growth rate of PPI continued to decline, but the month on month growth rate was 1.1%, an increase of 0.6 percentage points compared with the previous month. Behind the upward growth of PPI month on month, the petrochemical industry, black commodities and non-ferrous metals all contributed. In terms of structure: 1) in the means of production, the prices of mining, raw materials and processing industries are up month on month. As the processing industry is a link connecting the price of means of production and the price of means of living, the shift from decline to rise in PPI in the processing industry means that the transmission from the price of means of production to the price of means of living is marginally enhanced. 2) Among the means of living, the PPI sub items of food, general daily necessities and durable consumer goods all rose month on month; Clothing PPI fell 0.2% month on month, down 0.1 percentage points from the previous month, or due to the seasonal decline in downstream demand and insufficient consumer willingness.
Guard against the escalation of structural inflationary pressure. First, the rise in international food prices affects all walks of life downstream. China's grain self-sufficiency rate in 2021 was only 80.9%. The conflict between Russia and Ukraine exacerbated the risk of China's grain supply. Second, the risk of rising international crude oil has not subsided. The geopolitical conflict between Russia and Ukraine has not been properly resolved, and the release of crude oil reserves is still difficult to make up for the potential gap between supply and demand caused by Russia's further withdrawal from the crude oil market. Third, the price of thermal coal rose rapidly. Driven by international oil and gas prices, the price of overseas thermal coal rises rapidly, the price of thermal coal outside China is obviously upside down, and the pressure to maintain the supply and price stability of thermal coal increases. Fourth, the risk of PPI to CPI transmission is enhanced. Although the downstream consumer demand is weak, after the rise of raw material prices last year, the gross profit of the middle and downstream industries has been compressed to a lower position, and its "cushion" role is limited. If the follow-up cost rises further, more and more consumer goods will rise passively, and the risk of PPI to CPI transmission will increase.
We believe that the current structural inflation risk has become prominent, and there is the possibility of further upgrading, and the constraints on monetary policy have been further strengthened. At the same time, the "tightness gap" of monetary policy outside China has become more and more prominent. The nominal interest rate spread of China US ten-year Treasury bonds has been upside down in the session on April 11. In the short term, the central bank may pay more attention to the use of structural tools and highlight the coordination between finance and currency. From the tone of the national standing committee meeting on April 7, the targeted support of refinancing and rediscount to key industries in the future can be expected.
