Driven by the three factors of vegetables, meat and non food consumer goods, the CPI in December fell again to the "1%" range year-on-year, reaching 1.5% (the previous value was 2.3%). The falling direction was in line with the expectation and the falling speed was slightly faster than the expectation (our expectation was 1.8%). Among the 0.9pct dropped from the previous month, three factors dragged down 0.4, 0.1 and 0.3pct respectively.
The drop in vegetable prices is in line with our judgment that the rise in vegetable prices in the early stage has a short impact. In the inflation outlook for 2022: investment opportunities for convergence of the scissors gap, we pointed out that the impact of the sharp rise in vegetable prices caused by low temperature and rain in the summer and autumn crop changing season and the reduction in vegetable production may be short-lived. After the listing of vegetables in southern China in December 2021, the vegetable prices may fall. Historically, the impact of floods and late spring cold in 2016 and 18 was only 2-3 months. In December 2021, the CPI of fresh vegetables decreased by 8.3% month on month, down sharply from 30.6% to 10.6% year-on-year.
The fall of pig prices is in line with our judgment that the early rebound is not reversed, the inflection point of pig cycle or Q2. The fluctuation amplitude of this round of pig cycle is greater than that in the past, mainly because it is affected by African classical swine fever in the early stage, the profit is rich at the high point, and it is difficult for farmers to quit at the shallow loss. The peak of stock in July is not equal to the peak of production capacity. The proportion of binary pigs is rising, and the population efficiency is optimized. Therefore, the rebound of pig and pork prices from October to November last year was not a reversal, but due to the large number of pigs thrown into the market during the rapid price decline period of 21q2 and the boost of the demand for festival and cured meat, the supply of slaughtered pigs fell short of demand at different stages. However, we believe that the overall production capacity may still be high. In December and January this year, large and small farmers still had the power to concentrate on slaughtering before the Spring Festival, and the price of pigs fell instead of rising in December, CPI pork prices rose slightly by 0.4%, and with a high base, the year-on-year decline expanded to - 36.7%. After the Spring Festival, the pig price may still fall, and then the current round of pig cycle may turn upward.
CPI of non food consumer goods began to fall year-on-year, which is in line with our judgment that PPI has been conducting CPI with a delay of 2-3 months. In November, PPI fell year-on-year, while CPI rose sharply. Some people in the market believe that PPI began to transmit CPI. In fact, PPI means of production to means of livelihood and PPI to CPI non food consumption have been transmitting all the time, with a time lag of about 2-3 months in general and 3-6 months in some categories. In December, CPI prices of transportation and residential fuels, vehicles and medicine fell year-on-year.
The performance of service prices was different, and the overall service CPI was flat at 1.5% year-on-year compared with the previous month. Disturbed by the epidemic and affected by the slow recovery of income, the prices of hotels, rents and services are weak, but the prices of domestic services continue to increase year-on-year.
The effect of China's policy of ensuring supply and stabilizing prices continued to show. The Fed tightened and restricted international bulk prices in advance. In December, PPI further fell to 10.3% year-on-year (the previous value was 12.9%, our expectation was 11%), and fell (- 1.2%) for the first time after 18 months. In the 2.6pct of PPI falling more than last month, the tail warping factor and the new price rising factor contributed half respectively; By industry, petrochemicals, coal, ferrous non-ferrous metals and non-metallic minerals dragged down 2.8pct, while the reform of power market continued, and the rise of power price continued to pull forward 0.1pct; In terms of categories, mining, raw materials and processing industries in PPI means of production fell significantly year-on-year, food and clothing in means of living fell, general daily necessities remained flat year-on-year, and durable goods still increased slightly year-on-year, due to the impact of conduction time lag.
Looking ahead, under the constraints of high base, stable supply and price and the Fed's early tightening on bulk prices outside China, PPI may continue to fall year-on-year, and the rhythm and strength of steady growth policy will determine the speed of PPI decline. Since late November, screw thread futures prices have bottomed out and rebounded, taking into account the expectation of steady growth of infrastructure. It is still necessary to observe whether infrastructure can accelerate as scheduled according to high-frequency data. Disturbed by the epidemic, the adjustment of vegetable and meat prices and the decline of costs, we believe that CPI may still be "1%"
The interval stays for several months, and the upward rhythm in the future still depends on the strength of broadening finance and stabilizing credit. Although this year's "on-site Chinese New Year" policy is more flexible than last year, Xi'an, Henan, Tianjin and other places have frequent epidemics, the introduction of Omicron, psychological factors may have a greater impact on the choice of "on-site Chinese New Year", and the service price may still be under pressure; The high-frequency data in early January showed that the prices of fresh vegetables and pork continued to fall. Despite the dislocation of the Spring Festival, under the high base and weak new growth, the CPI in January fell year-on-year or further. In addition, the decline of PPI and the inflection point of pig cycle may still need to wait to Q2. We expect that the CPI will still hover in the "1% range for several months year-on-year.
