Key points
Event:
1) CPI was 1.5% year-on-year, the previous value was 2.3%, and the market expectation was 1.7%; CPI was - 0.3% month on month and the previous value was 0.4%;
2) core CPI was 1.2% year-on-year, and the previous value was 1.2%;
3) PPI was 10.3% year-on-year, the previous value was 12.9%, and the market expectation was 10.8%; PPI was - 1.2% month on month, and the previous value was 0.0%.
Core view:
CPI peaked and fell in the short term in December, which is related to the fading of low base effect and the super seasonal decline of food prices. The accelerated decline of PPI in December is related to the continuous effect of China's policy of maintaining supply and stabilizing price, weak demand of construction industry in winter and the decline of international crude oil price.
Looking ahead, with the easing of raw material cost pressure, the price transmission effect begins to weaken. Considering that the terminal demand is still gradually recovering, the profits of the middle and downstream industries are expected to continue to improve in the future. We expect the CPI center to rise to 2.1% and the PPI center to drop to about 3% in 2022.
The low base effect subsided and food prices fell over seasonality, driving the CPI to peak and fall in the short term. First, the increase in pig prices narrowed significantly, down to 0.4% month on month from 12.2% last month. With the end of winter curing, the support for pork consumption weakened. In addition, near the new year's day and Spring Festival, farmers' reluctance to sell and the release of live pigs accelerated. Second, with the resumption of fresh vegetable supply, fresh vegetable prices fell from a high level, with a month on month increase of 6.8% to a decrease of 8.3%.
Non food CPI weakened month on month, which is related to the ongoing disturbance of the epidemic, the easing of cost pressure, and the continuous improvement of terminal demand. In December, non food CPI fell to - 0.2% month on month from 0% in the previous month, lower than the average annual value of 0.1% in the past five years. First, due to the repeated epidemic in China, residents' willingness to travel decreased, and the prices of some services fell. Second, with the gradual easing of raw material supply constraints and the downward trend of international crude oil prices, vehicle fuel and hydropower fuel turned negative month on month in December. It should be noted that although the upstream cost pressure began to weaken, the prices of CPI clothing and household appliances still showed a super seasonal rise in December, which also pointed to the gradual improvement of the demand side.
Raw material prices continued to fall, and PPI accelerated downward. In December, PPI fell further to 10.3% from 12.9% of the previous month, and fell to - 1.2% from 0% of the previous month. As the effect of China's policy of ensuring supply and stabilizing prices continues to show, coupled with the weak demand of the construction industry in winter, the prices of high energy consumption such as coal, crude oil and steel continue to fall. At the same time, affected by the decline in international oil prices, the prices of China's crude oil processed products and chemicals also fell accordingly.
PPI means of living narrowed month on month, pointing to the weakening of price transmission effect. PPI means of living was flat month on month (MOM) from 0.4% last month, which was related to the easing of raw material cost pressure. Among them, the prices of food and general daily necessities fell to 0.1% month on month from 0.8% and 0.4% last month; Clothing prices rose for five consecutive months, falling to - 0.3% from 0.4% last month.
Looking ahead, CPI is expected to perform moderately and PPI will continue to fall. In terms of CPI, due to the phased easing of the contradiction between pork supply and demand, CPI is expected to remain within 2% in the first quarter. In terms of PPI, with the easing of the contradiction between supply and demand of China's bulk commodities and the decline of raw material prices, PPI continues to decline. In the future, the focus of attention will shift from China to abroad, such as energy prices such as crude oil and natural gas.
With the easing of cost pressure and the steady recovery of demand, the profits of the middle and downstream industries are expected to continue to improve. In PPI means of living, the price of clothing rose for five consecutive months, and the price increase of food and daily necessities also narrowed significantly, indicating that the price transmission effect began to weaken. Meanwhile, the prices of CPI clothing, household appliances and other daily necessities still showed a super seasonal rise this month. This shows that the cost pressure of the middle and downstream industries is further alleviated, while the terminal demand is still gradually recovering, and the profit space of the middle and downstream industries is expected to continue to improve in the future.
