On January 12, the National Bureau of statistics released the price index for December 2021.
In December 2021, the national consumer price (CPI) increased by 1.5% year-on-year, and the annual CPI increased by 0.9%. In December 2021, the national industrial producer’s ex factory price (PPI) increased by 10.3% year-on-year, and the annual PPI increased by 8.1% year-on-year.
21st Century Business Herald reporter noted that this is the largest annual growth scissors difference between PPI and CPI since PPI data was available in 2003, with a difference of 7.2 percentage points. Due to limited supply, strong demand, loose liquidity and other reasons, the global upstream primary products rose gratifying and profits increased greatly in 2021. At the same time, China’s terminal consumption is relatively weak and the supply is sufficient. It is difficult for downstream consumer goods to rise prices accordingly and profits are under pressure.
Of course, the trend of PPI and CPI will not continue to deviate. Since the second half of 2021, the prices of paper products, condiments, edible oil, snacks, milk tea and other end consumer goods have increased one after another. The reason behind this is that the rising costs of raw materials, energy, transportation and labor erode profits and need to increase prices appropriately.
Looking forward to 2022, the uncertain factors caused by the epidemic still exist, but the global monetary policy begins to turn. It may be difficult to see the crazy rise of commodities in 2021, and the rise of PPI in 2022 is expected to be corrected. Meanwhile, with the gradual recovery of Chinese consumption and the correction of pork prices, CPI may rise moderately in 2022.
Service consumption bottoms out in 2021
In December, CPI rose by 1.5% year-on-year, down 0.8 percentage points from the previous month. Factors such as the epidemic situation in China, the increase in fresh vegetable supply and the difficulty of sustained rise in pork prices were the main factors for the moderate correction of CPI in December.
Affected by rainy weather, local outbreaks, increased production and transportation costs and other reasons, fresh vegetables became an important factor in the rise of CPI in the fourth quarter. With the continuous increase of fresh vegetables on the market, the price of fresh vegetables decreased by 8.3% month on month in December. After the “nine consecutive declines” of pork during the year, the price of pork has been corrected since November due to the impact of the recovery of demand and tight supply. However, the pork price rose only 0.4% month on month in December, and the pork price is still hovering at the bottom. The downward fluctuation of international crude oil prices also led to the decline of transportation prices in December. The prices of gasoline and diesel decreased by 5.4% and 5.8% month on month in December.
In 2021, CPI rose only moderately by 0.9% over the previous year, due to the downward cycle of pork prices and the drag of the epidemic on China’s consumption.
Taking the service industry most affected by the epidemic as an example, the year-on-year increase of service prices in 2010-2019 was basically more than 1.4%, and the year-on-year increase of service prices since the epidemic in 2020 was generally locked below 1.4%. In 2021, the service price gradually came out of the V-shaped bottom, and roughly returned to a year-on-year increase of 1.5% after July. In 2021, the service price increased by 0.9% for the whole year.
After the continuous upward cycle of pork prices in 2019 and 2020, there will be a correction cycle in 2021. From February to October 2021, the price of pork continued to decline. In 2021, the price of pork decreased by 30.3% over the previous year.
At the same time, PPI growth in 2021 continues to refresh the historical record, and the market pays great attention to the price trend of upstream industrial products. However, the situation of PPI callback at the end of the year is obvious. In December, PPI rose by 10.3% year-on-year, down 2.6 percentage points from the previous month, continuing the downward trend of the previous month. Among them, the prices of coal, steel, oil, nonferrous metals and other industries fell.
Dong Lijuan, Senior Statistician of the city Department of the National Bureau of statistics, said that the implementation of the policy of ensuring supply and stabilizing price has been increasing, and the coal price continued to fall in December. In winter, the demand for steel, cement and other building materials is weak, and the price decreased in December. Lower international crude oil and nonferrous metal prices have driven down the prices of relevant industries in China.
Fan Ruoying, a researcher of Bank Of China Limited(601988) Research Institute, pointed out that the policy of ensuring supply and stabilizing price was effective, superimposed on the decline of international crude oil price, which narrowed the year-on-year increase of PPI in December. China’s policy of ensuring supply and stabilizing prices continued to advance, coal production and market supply increased steadily, and coal prices fell further. The average settlement price of thermal coal futures in December was 866 yuan / ton, down 17.1% month on month. As OPEC + continued to promote the production increase plan, the international crude oil supply constraints were eased, and the crude oil price fell. For example, the average settlement price of Brent crude oil futures in December was $75 / barrel, down 7.48% month on month.
Throughout the whole year of 2021, PPI rose by 8.1% year-on-year. In the first half of the year, it was mainly imported inflation caused by the continuous rise in the prices of iron ore, nonferrous metals, Shenzhen Agricultural Products Group Co.Ltd(000061) and other commodities, and in the second half of the year, it was mainly caused by the shortage of coal and power supply in China. Coal, oil, iron ore, steel, nonferrous metals and other industries led the increase, with an annual increase of more than 20%. Among them, the coal mining and washing industry increased sharply by 45.1% in 2021, ranking first in the price increase range of the industrial industry.
What will be the price trend in 2022
As the epidemic is still likely to recur, there are still variables in the price trend of commodities in 2022.
Since late December, international crude oil prices have bottomed out and rebounded. Since January 4, the settlement price of Brent crude oil futures has returned to more than $80 / barrel. Citic Securities Company Limited(600030) the macro team pointed out that recently, the crude oil production capacity and supply of Ecuador, Libya, Kazakhstan and other countries were affected by time events, and the supply was tight in the short term; Meanwhile, Omicron’s impact on demand was weaker than expected, providing support for the rise in crude oil prices.
However, market institutions generally expect that the increase of PPI will fall in 2022.
Zhu Baoliang, chief economist of the National Information Center, said that countries around the world have made economic recovery and full employment their top priority, and their tolerance for prices has improved. At the same time, the problem of supply disorder caused by the epidemic is difficult to be fundamentally alleviated, and prices and wages rise in turn in some developed countries. Therefore, global inflation will continue for some time, but it should be phased, not comprehensive, long-term and sustained. Back to China, due to China’s low demand, if there is no supply side shutdown, production reduction or import price impact, China’s energy and raw material prices will fall sooner or later.
“Considering that the price hike in 2021 will have a great impact on 2022, the supply gap of coal and chips will continue for some time, and the prices of grain and pork have been low. It is expected that CPI will rise by about 2.5% and PPI will rise by about 4.5% in 2022,” Zhu Baoliang pointed out.
Fan Ruoying said that it is expected that the increase of PPI will fall from a high level in 2022, showing a trend of high before and low after the whole year. Affected by the slowdown of global economic recovery, the gradual easing of energy supply constraints, the adjustment of the monetary policy direction of the Federal Reserve and other factors, the driving force for the continuous rise of commodity prices has weakened. Further considering the tail raising factors, it is expected that the increase of PPI in 2022 will decrease quarter by quarter, and may turn to negative growth in the fourth quarter, with an annual increase of about 4%.
The scissors gap between PPI and CPI in 2021 has squeezed the profits of downstream consumer goods.
For example, due to the sharp rise in raw materials such as soybeans, oilseeds and rice, Yihai Kerry Arawana Holdings Co.Ltd(300999) disclosed that it raised the price of some edible oil from March to April 2021, with an overall increase of 10% – 15%, but this increase could not fully cover the increase in raw materials. The net profit of Yihai Kerry Arawana Holdings Co.Ltd(300999) in the first three quarters of 2021 decreased by about 28% year-on-year.
This deviation from profits is expected to be greatly alleviated in 2022. Since 2022, several listed companies have announced price increases, including soy sauce, melon seeds, milk, milk tea, etc. According to the research and judgment of some institutions, the increase of CPI in 2022 is expected to rise, and the annual increase is higher than that in 2021.
Fan Ruoying pointed out that in 2022, CPI growth will pick up moderately, showing a trend of low in the first and high in the second. A new round of “pig cycle” will start in mid-2022, and the relationship between pork supply and demand will change in the future. At the same time, the upstream price rise is gradually transmitted to the downstream. After the superposition of the electricity price reform, the power consumption cost of enterprises will rise, and the cost driven inflation pressure will rise. It is expected that CPI will remain low in the first half of 2022, and the increase will expand in the second half of 2022, with an annual increase of about 2.2%.
Citic Securities Company Limited(600030) the macro team pointed out that pork prices are expected to bottom out in the middle of the year, and will change from a drag on CPI in 2021 to a driving factor in 2022. With the further effective control of the epidemic in China, the prices of offline goods and services may rise, such as transportation and communication, catering and accommodation, clothing, etc. it is expected that CPI will rise quarter by quarter in 2022.
