Event overview:
On January 12, the Bureau of statistics released the inflation data for December 2021. CPI rose by 1.5% year-on-year and the previous value rose by 2.3%; PPI increased by 10.3% year-on-year and the previous value increased by 12.9%.
Analysis and judgment:
The CPI of food items fell sharply, and the core CPI remained at the level of the previous period.
Among the eight first level subprojects of CPI this month, the year-on-year growth rate of six items increased and two items fell.
Among them, the year-on-year growth rate of food, tobacco and alcohol prices was - 0.1%, and the previous value was 1.7%; Down - 0.3% month on month. The increase in vegetable supply in the South and the drop in vegetable prices are the main reasons for the drop in food, tobacco and alcohol prices. In December, the year-on-year growth rate of fresh vegetable prices recorded 10.6%, down 20.0pct. According to the data of the Ministry of agriculture, the average wholesale price 200 index of vegetable basket products rose to a stage high of 134.26 on November 14, and then began to decline continuously. After that, there had been an inflection point in the rise of vegetable prices caused by supply shortage. As of the last week of December, the average wholesale price 200 index of vegetable basket products fell to 127.69. On the other hand, pork prices also fell slightly. According to our previous analysis, since the absolute number of fertile sows is still at a high level, the number of pigs sold increased slightly in December, and the increase in supply is the main reason for the fall of pork prices again in December. According to statistics, the average price of pork in 22 provinces and cities in the week of December 25 was 23.77 yuan, which has fallen slightly for three consecutive weeks since the beginning of December. In December, the year-on-year growth rate of CPI pork price recorded - 36.7%, with a decrease of 4.0pct compared with the previous month. We believe that the long-term pork price will still show a steady recovery trend. However, as the supply side capacity is still at a high level, the marginal change of marketing volume will cause a short-term disturbance to the pork price. It is expected that the pig price is less likely to rebound sharply in the short term, and will show a moderate recovery trend this year.
The year-on-year growth rate of transportation and communication recorded 5.0%, down 2.6pct compared with November, and the year-on-year growth rate fell for the first time after rising for three consecutive months. The decline of China's oil price driven by the decline of international crude oil price is the main reason for the decline of year-on-year growth of transportation and communication. In December, the average settlement prices of WTI and Brent futures recorded - 4.57% and - 3.27% month on month respectively, while the prices of gasoline and diesel in China decreased by 5.4% and 5.8% respectively. In terms of crude oil supply, the OPEC + meeting on January 4 decided to increase production by 400000 barrels / day in February. Although OPEC + member states agreed to continue to increase production, the uncertainty of the recent epidemic has increased the concerns of Member States about demand. Member States said at the meeting that they may suspend or even reduce production if necessary. In terms of crude oil demand: research by the UK health and Safety Authority (ukhsa) and the University of Cambridge showed that the hospitalization risk of Omicron diagnosed group was low, and the impact of the new virus on production activities was less than Delta, so the market lowered its expectation of excess crude oil supply. We believe that we should pay attention to the impact of the new global epidemic trend on crude oil demand. However, the flexibility of OPEC + policy makes it difficult for the international crude oil price to fall sharply, and the international crude oil price will remain volatile in the short term.
The simultaneous decline in the prices of vegetables and crude oil was the main reason for the sharp decline in the year-on-year growth rate of CPI in December, while the core CPI excluding food and energy remained at 1.2% year-on-year, unchanged from the previous period. Combined with the 0.0% month on month growth of core CPI, the terminal price did not fall sharply, and the overall performance was relatively stable.
The upstream means of production fell sharply, and the downstream means of living prices remained stable
In December, PPI rose by 10.3% year-on-year, down slightly by 2.6pct compared with the previous month. The price of means of production increased by 13.4% year-on-year, the former value was 17%, down 3.6pct; The price of means of living increased by 1.0% year-on-year, unchanged from the previous period. China's coal, crude oil and other fuel prices continued to fall, superimposed on the reduction in the number of starts in winter, and the weakening demand for bulk commodities such as steel, cement and wood, resulting in a significant decline in the prices of upstream, middle and downstream means of production. The year-on-year growth rates of upstream mining industry, midstream raw material industry and downstream processing industry recorded 44.2%, 19.2% and 8.2% respectively, down 16.3, 5.3 and 1.9 PCT compared with the previous period, and the downstream scissors difference continued to narrow. The base effect in 2021 determines that PPI has entered the trend decline stage. PPI no longer constitutes a constraint on inflation and policies, but it is necessary to pay attention to the possible periodic disturbance to PPI caused by overseas economic recovery and China's infrastructure development.
From the perspective of subdivided industries, the continuous implementation of "ensuring supply and stabilizing price" has led to a further decline in coal prices. China's epidemic and seasonal factors have weakened the demand for bulk commodities such as crude oil, steel and cement, resulting in a significant year-on-year decline in the price growth of coal, black, oil and other related industries. Among them, the year-on-year growth rates of upstream coal mining and washing industry, oil and gas mining industry and ferrous metal mining and dressing industry decreased by 22.0, 22.9 and 12.1pct respectively compared with the previous month; The year-on-year growth rates of oil, coal and other fuel processing industry, ferrous metal smelting and rolling processing industry, non-ferrous metal smelting and rolling processing industry in the middle reaches decreased by 16.7, 9.6 and 6.5 PCT respectively compared with the previous month. Due to the increase of heating demand in various places near December, the downstream gas production and supply industry and power and heat production and supply industry increased slightly, with a year-on-year growth rate of 12.5% and 4.8% respectively, up 1.6 and 2.4pct compared with the previous month.
On the whole, the sharp decline of CPI in December was mainly due to the increase of vegetable supply and the decline of high prices. However, as the Spring Festival approaches, there has been a downward inflection point in superimposed pig prices. Superimposed on the low year-on-year growth base of CPI in the first quarter of 2021, it may drive CPI to enter the upward stage again. However, as the recovery of consumer demand will not be achieved overnight, it is expected that the upward pressure is more controllable. On the other hand, due to the zero tail warping factor in December and the weak demand for raw materials, the year-on-year growth rate of PPI also fell sharply. The continuous narrowing of the scissors difference between upstream and downstream indicates that PPI has entered a decline cycle. Combined with the impact of the high base effect in 2021, PPI is expected to show an obvious decline trend in 2022.
Investment strategy: be alert to the failure of the expectation of interest rate reduction and pay attention to the capital disturbance before the Spring Festival
The sharp fall in CPI in December was lower than the previous market's expectation of moderate upward inflation. After the data were released, the bond market rose slightly. However, the price of treasury bond futures fell again after a brief rise, indicating that inflation is no longer the core factor affecting the trend of the bond market at this stage. Combined with the bond market performance after the release of previous inflation data, we believe that inflation has been difficult to have a substantial negative impact on interest rates.
In the short term, the marginal weakening of the current inflation data is only a short-term phenomenon due to the increase of disturbance factors. The subsequent market's expected judgment on credit easing and interest rate and standard reduction will become the key factors affecting the trend of interest rate. We believe that the current market may over overdraft the expectation of interest rate reduction, and although the capital performance is relatively stable in the short term, the disturbance to the capital surface has increased near the Spring Festival, and the volatility of interest rate in the first quarter may increase. We need to be vigilant against the failure of the expectation of interest rate reduction and the upward risk of interest rate caused by the change of capital price. Because we believe that the current interest rate allocation is not cost-effective, we suggest paying attention to the allocation opportunities brought by subsequent adjustments.
Risk tips
There is uncertainty between credit risk and epidemic development.
