Consumer prices fell month-on-month in February Industrial producer ex-factory prices show that production repair remains strong

National consumer prices (CPI) rose 1.0% year-on-year and 0.5% month-on-month in February according to the National Bureau of Statistics on March 9. National industrial producer ex-factory prices (PPI) decreased by 1.4% year-on-year, flat month-on-month; Purchasing prices for industrial producers decreased 0.5% year-on-year and 0.2% month-on-month.

The data shows that the CPI in February turned from a 0.8% increase in the previous month to a decrease of 0.5%; The year-on-year fell sharply by 1.1 percentage points to 1.0%, and the PPI turned flat from a 0.4% decrease in the previous month. The year-on-year decline expanded by 0.6 percentage points to -1.4%.

The "Spring Festival and the wrong moon" effect is the main reason for the large year-on-year decline in CPI

Dong Lijuan, chief statistician of the Urban Department of the National Bureau of Statistics, pointed out that in February, affected by factors such as the decline in consumer demand after the holiday and sufficient market supply, consumer prices fell month-on-month, and the year-on-year increase fell. It is estimated that in the 1.0% year-on-year increase in CPI in February, the tail impact of the previous year's price change was about 0.7 percentage points, and the impact of the new price increase was about 0.3 percentage points. Core CPI, which excludes food and energy prices, rose 0.6 percent year-on-year, down 0.4 percentage points from the previous month.

Wang Qing, chief macro analyst of Oriental Jincheng, believes that the "Spring Festival and the wrong moon" effect is the main reason for the large year-on-year decline in CPI in February, which also means that the current consumption repair is relatively moderate, and the later policy promotes consumption space. Looking ahead, taking into account the trend of high-frequency price data since March, as well as the change in the base of the previous year (CPI was 0.9% year-on-year in February 2022 and rose to 1.5% in March), it is expected that the CPI in March will continue to be at a moderate level below 2.0% year-on-year.

This is in sharp contrast to the current high overseas inflation, and the price trend will still be the biggest difference between domestic and foreign macroeconomics at this stage. This means that in the short term, no matter how the Fed raises interest rates, the mainland's monetary policy will remain independent, thus providing greater policy space for domestic economic recovery to rise faster.

Ding Yujia, a researcher at Zhixin Investment Research Institute, believes that compared with the seasonal pattern of CPI month-on-month in the month after the Spring Festival in previous years, the month-on-month change direction of CPI in February 2023 is generally in line with the characteristics of the post-holiday period, but the trend is weak, and it has not continued the momentum of strong recovery of consumption since the Spring Festival. In addition, the core CPI fell to 0.6% year-on-year, which is at a low level, which means that there is more room for follow-up policies to further consolidate and enhance the momentum of consumption recovery.

Looking forward to the next stage, consumption will continue to recover weakly under the traditional off-season; Pork prices are expected to recover as the storage mechanism is launched and the secondary fattening pigs are coming to an end. Fruit and vegetable prices continue to decline seasonally as the weather warms. Under the influence of tail factors, the CPI may tend to decline year-on-year in the next stage. From the perspective of the annual trend, the CPI is expected to fall first and then rise year-on-year, and the center of the second half of the year may be significantly higher than the first half of the year.

For some time, the growth rate of broad money supply (M2) in the mainland has been at a high level, and with the further consolidation of consumer confidence, the increase in consumption scenarios after the second quarter, and the recovery of total social demand, the lagged effect of loose monetary policy on prices may appear, bringing certain upward pressure on prices. At the same time, the structural inflationary pressure caused by the unsynchronized supply and demand recovery after the epidemic and the imported inflationary pressure brought about by the high global inflation are still not small, thus pushing up the CPI center, and the year-end high may break through 3%, and it can still be controlled below the moderate level of 3% throughout the year. The overall moderate and stable prices in the mainland have a solid foundation, creating an ideal price environment and policy space for subsequent macro-control and accelerated economic repair.

Sun Fu, chief analyst of West China Securities Research Institute, believes that the CPI pressure this year is generally limited. After the Spring Festival (March to May) is the traditional off-season, pork prices are still difficult to recover sharply, becoming the main force suppressing the upward trend of CPI. In addition, as the economy stabilizes and recovers, service prices may rebound, which in turn will lead to a gradual upward trend in the core CPI, but from the perspective of the slope of household consumption repair (the actual social zero growth of about 6% throughout the year), it is difficult for the core CPI to rise sharply beyond expectations.

The year-on-year decline in PPI widened significantly, but the production repair was still stronger than demand

Dong Lijuan said that in February, the recovery of production of industrial enterprises accelerated, market demand improved, and PPI was flat month-on-month; Affected by the high comparative base in the same period of the previous year, the year-on-year decline continued. It is estimated that in the 1.4% year-on-year decline in PPI in February, the tail impact of the previous year's price changes was about -0.9 percentage points, and the impact of new price increases was about -0.5 percentage points.

Wang Qing said that the overall domestic refined oil prices in February were higher than in January, while the resumption of construction work and the expected recovery in demand boosted the prices of industrial products such as steel and nonferrous metals, but the decline in coal prices and the decline in consumer demand after the holiday dragged down the prices of downstream living materials across the board; Although the PPI stopped falling month-on-month in February, it was only flat, and coupled with a higher base, the year-on-year decline widened significantly, and the performance was slightly lower than expected. As domestic demand began to repair the process, the market expected to improve, and the PPI turned from falling to flat in February, and the year-on-year decline widened due to the higher base, and the trend was in line with expectations.

Looking forward to March, the center of international oil price fluctuations since February has fallen from January, and it is expected that the average domestic refined oil prices in March will be lower than in February. At the same time, although domestic coal prices stabilized in late February, with the arrival of the off-season for coal use, it is expected that coal prices will have limited momentum to rebound in March, and energy prices are expected to continue to decline in March. The resumption of construction work, the acceleration of production and the expectation of economic recovery have a more obvious effect on the price of midstream industrial products, but real estate investment is still sluggish, which will continue to drag down the upside of prices.

In addition, considering that the current consumption is still in the early stage of consumption repair, the overall consumption is still weak, and the market supply is sufficient, although the price of downstream living materials is expected to stop falling in March, it is difficult to see a significant increase. Overall, the month-on-month rise in March is expected to accelerate slightly, but the increase will be difficult to offset the impact of the higher base, and the year-on-year decline in PPI is expected to expand to about -2.0% in March.

Ding Yujia believes that due to the significant increase in the comparison base of the same period last year due to the impact of the Russian-Ukrainian conflict, coupled with the current economic operation although marginally improved but still in the early stage of repair, production recovery is stronger than demand, the real estate industry is still in the bottom-building stage, PPI month-on-month upward momentum may be slow, year-on-year downward pressure is still large, the decline is expected to widen significantly. It is expected that the PPI will continue to deflation in the first half of the year, and in the second quarter, as the operating rate of downstream industrial enterprises continues to increase and the demand for replenishment is further released, it will gradually bottom out and gradually recover.

Beijing News shell financial reporter Zhang Xiaochong

Edited by Pan Yichun

Proofreading by Wang Xin