Research conclusion
On the morning of January 12 US Eastern time, the United States released December CPI data. In December, the CPI was 7.1% year-on-year, and the former value was 6.9%; The month on month ratio was 0.5%, and the previous value was 0.8%. In December, the core CPI was 5.5% year-on-year, and the previous value was 5.0%; The month on month ratio was 0.6%, and the previous value was 0.5%. Inflation continued to rise year-on-year, breaking 7 and reaching a new high. However, after the data landed, US stocks still rose. Until the report was released, the yield of 10-year US bonds fluctuated downward. Since the beginning of the year, monetary policy tightening has been the core risk point perplexing the market, and high inflation is its underlying logic. Inflation broke 7 in December, but the market feedback was mild. We think it implied some key information about the current market's macro risk pricing.
In December, CPI data broke 7 record high year-on-year, but it was in line with market expectations. The year-on-year growth rate of CPI in December was 7.1% and that of core CPI was 5.5%, both of which were higher than that in November, reaching a new high. The month on month ratio was 0.5% and 0.6% respectively. CPI continued to decline, but the core CPI rebounded slightly. Although the overall growth rate of inflation in December was high, under the trend of continuous high inflation in the second half of 2021, the market had strong consistent expectations of inflation breaking 7 in December. Before the data release, Bloomberg unanimously expected the CPI reading to be 7.0% year-on-year, and the released data basically met the market expectations.
Energy & Food and housing still make a major contribution to CPI year-on-year, which is the main contradiction in the risk of high inflation in the United States. The year-on-year CPI in December was still driven by energy, food and housing. Among the 7.1% year-on-year CPI, food items pulled 0.9%, energy items pulled 1.7% and housing items pulled 1.8%. The commodity items pulled 1.2%, mainly from the contribution of used cars / trucks (0.7%). There is a strong linear correlation between energy and food prices in a basket of consumer goods and oil prices. Oil prices determine the price trend of energy and food, while housing prices are affected by the trend of U.S. House prices.
The impact of energy on inflation has weakened, the inflection point of housing price growth is expected to appear by the end of 2022, and inflation is expected to peak. Since the end of November, oil prices have fallen and fluctuated. In December, the ring ratio of energy items in CPI has changed from positive to negative, and the year-on-year growth rate has also decreased significantly. After the epidemic, the substantial rise of oil prices began from November to December 2020, which means that from now on, energy prices will also face more and more significant high base pressure in the future, and the year-on-year contribution rate to inflation will gradually weaken. The growth rate of housing is still rising, because the housing rent lags behind the housing price cycle and is still in the accelerated upward stage. According to the S & P / CS housing price index of large and medium-sized cities, the U.S. housing price cycle has shown a continuous downward trend in growth in July 2021, while the housing rent item in CPI has lagged behind the housing price cycle for 16 months in history, and the housing price growth in this round of real estate cycle has lagged behind the start of housing price growth for about 9 months, which means that although the housing price growth in CPI is still high, However, it is expected to usher in a growth inflection point later in 2022. According to our previous forecast, the year-on-year growth rate of CPI and core CPI is expected to cross the peak in Q1.
Key information implied by market feedback: more importantly, we believe that after inflation broke 7, the relatively mild feedback of the market implies some key information about the current market's macro risk pricing. Since the beginning of the year, monetary policy tightening has been the core risk point perplexing the market, and high inflation is its underlying logic. As a concrete carrier of the impact of policy tightening, the expectation of the Federal Reserve to shrink its table in advance pushed up the yield of 10-year US bonds to more than 30bp in a short time. After studying the potential target range of the current round of Fed's table contraction and the theoretical impact on interest rates, we believe that if the core driving force for the rise of 10-year US bond yields since the beginning of the year is the expected impact of table contraction, the current upward range of interest rates has been priced to a large extent, and the factors of future table contraction will have an upward effect on interest rates. However, under the combination of short-term high growth + hot economy, the policy signal transmitted by the Federal Reserve may still be eagle, causing continuous risk disturbance to the market. The mild feedback from the market on the current high inflation data is a reassurance that contains important information. Its message is that the inflation expectation of the current market has indeed peaked, and the tightening expectation of the policy is likely to be adjusted in place. Under the tightening policy expectation implied in the current market pricing, it continues to boost the interest rate sharply The space to suppress the stock market may be limited.
Risk tips
The risk of persistent supply chain bottlenecks.
The risk of runaway management of inflation expectations.
The risk of higher than expected upward oil prices.
