On April 11, 2022, the Bureau of statistics released inflation data. In March, inflation was fully expected by supermarkets. Whether PPI or CPI, or even the price of service items that had been depressed before, there was also a super seasonal performance in March.
Since the end of February, China and even the world are experiencing the most complex period of inflation. What is a complex inflation cycle? It mainly depends on three points.
First, the Federal Reserve has responded to inflation at all costs by raising interest rates and shrinking the table beyond expectations.
On March 17 (Beijing time), the Federal Reserve began the first interest rate increase in this round of anti inflation, with a moderate rate increase of 25bp at a time. However, since this year, the United States has faced runaway inflation. In order to block the inflation spiral mechanism, the Federal Reserve has started unprecedented monetary tightening at present and for some time in the future.
In the second quarter, the Fed hesitated no longer to "raise interest rates by 25 or 50bp", but to raise interest rates several times by 50bp. At the same time, the contraction of the table will be promoted at the maximum speed in the second quarter. It is not difficult to understand that the interest rate of US bonds has risen rapidly recently, and this year has completed the rare upside down of interest rate difference between China and the United States (10-year Treasury bonds).
The complexity of current inflation is not entirely due to the high and low inflation readings, but also because the Fed's response to inflation is very special.
Second, it is impossible to judge the price fluctuation in the upper reaches and the short-term supply constraint.
Since February, the conflict between Russia and Ukraine has driven the rise of crude oil, nonferrous metals, grain and other bulk prices. The March inflation data reflected this incisively and vividly. Taking China's PPI as an example, energy and non-ferrous metals accounted for 70% of the month on month increase of PPI in March.
The overseas developed economies in Europe and the United States have gradually liberalized the epidemic control, and the production and demand of overseas economies, especially the travel demand, have been released rapidly. This in itself will drive crude oil and other bulk prices to show a strong month on month momentum. The conflict between Russia and Ukraine deepened again, and the prices of upstream crude oil and nonferrous metals.
The recent upstream price trend is still affected by Russia and Ukraine. However, the market is still unable to fully judge the progress of the conflict between Russia and Ukraine, which also means that the recent high volatility of the upstream inflation rate.
Third, in March, China's epidemic pushed up consumer prices, and China loomed the pressure of "stagflation".
In 2021, the monetary policies of China and the United States were reversed, the policies of China were convergent and the policies of the United States were loose. In this process, China's demand shrinks, overseas demand expands, and the demand level presents a typical "hot outside and cold inside", corresponding to the extreme differentiation of upstream and downstream prices at the price level.
In March, the epidemic spread in China. The impact of the epidemic on the economy is mainly reflected in investment and consumption.
First, the PPI of China's highly priced non-metallic building materials fell for three consecutive months, describing the temporary impact on infrastructure and real estate investment; The second high-frequency data shows that the current consumption of Chinese residents is under pressure. In addition, the synchronous prices of building materials, textile and clothing industries show that China's demand is weak.
However, the inflation data in March showed very interesting characteristics. It seems that China's economy has moved from simple "stagnation" to "stagflation".
High frequency and inflation data show that the impact of this round of epidemic on the economy is not just to suppress demand. The more profound impact is that the epidemic has impacted the local supply chain, and then opened "micro stagflation" at the Chinese level. This is clearly not a good sign.
In the face of such complex inflation, how will the policy break in the future?
We think there may be two key points. First, actively repair China's supply chain and reduce China's stagflation risk. Second, the steady growth measures aimed at opening up the demand of the construction industry will be further increased. We have combed the epidemic policy and found that there are two kinds of effective anti epidemic policies in China. One is finance and the other is real estate. Both operations point to the demand expansion of the construction industry, so as to hedge China's insufficient demand.
Risk tip: the economic trend exceeds expectations; The epidemic development exceeded expectations; Geopolitics exceeded expectations.
