On January 12, the data of the U.S. Bureau of labor statistics showed that in December 2021, the U.S. CPI increased by 7.0% year-on-year, 0.2 percentage points higher than the previous month, reaching or higher than 5% for 8 consecutive months, the fastest increase since June 1982. Excluding volatile food and energy prices, the core CPI increased by 5.5% year-on-year, higher than the expected value of 5.4% and the previous value of 4.9%, the highest level since February 1991. The main concerns are as follows:
First, the prices of household consumption related to the epidemic and transportation commodities affected by supply chain bottlenecks remain high, and the US CPI is difficult to fall in the short term. Among the sub categories, transportation, food and beverage, clothing, housing and other consumer activities related to the epidemic increased the most. The year-on-year growth rate of prices in December 2021 was 21.1%, 6.0%, 5.8% and 5.1% respectively. These four accounted for 76.1% of the weight of CPI, driving the CPI to increase by 6.5% year-on-year. From the month on month change trend, although the sub item price of transportation has the fastest year-on-year growth, the rapid upward trend has eased, and the growth rate in December 2021 is consistent with that in November; The sub item prices of clothing and medical care continued to grow, with the growth rate increasing by 0.8 and 0.5 percentage points respectively over the previous month; Education and communication prices have fallen. It can be seen that at present, the main factors driving the rise of CPI are still home consumption related to epidemic prevention and control such as food and beverage, clothing and housing, as well as transportation and other factors affected by supply chain bottlenecks. The impact of service commodity consumption such as entertainment, education and communication on the rise of CPI has weakened (Table 1). At present, the epidemic situation in the United States is repeated again, the consumption of service commodities will be reduced, and the price increase will continue to slow down or fall. However, the prices of home consumption related to the epidemic and transportation commodities affected by supply chain bottlenecks will continue to remain high, and the CPI in the United States will be difficult to fall in the short term. As inflation continues for a longer time, US inflation expectations have risen. At present, the implied inflation rate expectation of 10-year inflation protected treasury bonds (TIPS) has reached 2.48%, an increase of 47 basis points over the beginning of 2021. However, recently, with the expected rise in interest rates, inflation expectations have dropped, highlighting the necessity of raising interest rates.
Second, the rapid rise in inflation will push the Federal Reserve to accelerate monetary policy tightening. The Federal Reserve will comprehensively consider the trend of indicators such as U.S. economic recovery, job market performance and inflation to adjust monetary policy. At present, the U.S. economy is gradually recovering, and the GDP growth rate is expected to reach 5.6% in 2021. After the official release of GDP data at the end of January 2022, it may provide more confidence for the Federal Reserve to raise interest rates. Although the U.S. labor market has not fully recovered to its pre epidemic level, the unemployment rate has fallen below 4% again, and the constraints from the job market have weakened. However, the US inflation pressure is becoming more and more severe, and there is no obvious sign of decline in the short term. The Federal Reserve needs to take faster action to curb inflation. At the Senate hearing held on January 11, Federal Reserve Chairman Powell said that if the high inflation in the United States lasts longer than expected, the Federal Reserve will have to raise interest rates more times; Compared with the last time when the Federal Reserve tightened monetary policy, the U.S. economic situation is completely different and the balance sheet is larger. Therefore, the Federal Reserve will reduce its balance sheet earlier and faster, and the interval between ending the asset purchase initiative and starting to reduce its balance sheet will be shorter. From this perspective, the Fed may start raising interest rates as early as the end of asset purchase in March, raising interest rates about three times during the year, and may start to reduce its balance sheet in the second half of the year. Compared with the previous round of monetary policy normalization cycle, the pace of tightening will be significantly accelerated.
Third, pay attention to the spillover impact of the Fed raising interest rates too quickly. From the perspective of the United States, the interest rate increase is mainly to curb inflation, and the cost is the driving force of economic recovery and the stability of financial markets. The Fed's interest rate increase will increase the market financing cost, which is unfavorable to enterprises' expansion of reproduction and investment. At the same time, it will also inhibit residents' families' consumption of large categories of goods such as real estate and cars. The short-term interest rate may rise faster, the yield curve may flatten, and the term premium may be distorted, affecting economic growth. In addition, with the rise of interest rates, some funds will flow from the stock market to the fixed income market. When the valuation of U.S. stocks is obviously high and deviates from economic fundamentals, there is a risk of a sharp correction in the stock price. The impact of superimposed interest rate hikes on bond prices may lead to the simultaneous decline of stocks and exchange rates and amplify financial fluctuations. From the perspective of emerging economies, as the Federal Reserve accelerates the tightening of monetary policy, there may be a large outflow of capital, and the risk of financial fluctuations such as exchange rate depreciation, bond market default and stock price decline increases. In order to curb the potential risk of financial fluctuations, the interest rate curve of emerging economies may increase faster than that of the Federal Reserve. Under the background of the epidemic still spreading, It will further aggravate the difficulty of economic recovery. From the perspective of China, with the acceleration of the Fed's interest rate hike, the rebound in the fluctuation of the US dollar index and the increase of financial fluctuations in emerging economies, Chinese enterprises and market players will dynamically adjust the currency structure of assets and liabilities in combination with changes in the situation, the surplus of Bank settlement and sales of foreign exchange on behalf of customers and foreign-related collection and payment may narrow, cross-border capital inflow may slow down, and the exchange rate fluctuation will be greater than that in 2021, The characteristics of two-way fluctuation will be more obvious; Overseas stock market fluctuations may affect China's stock market through cross-border asset allocation portfolio adjustment and risk aversion. At the key time points of the Federal Reserve's interest rate meeting and US stock fluctuations, China's stock market may follow fluctuations in the short term.
In 2022, we should pay close attention to the tightening rhythm of the Federal Reserve's monetary policy and the volatility of the global financial market, and do a good job in risk prevention and control in time.
