Interpretation of inflation data in August: deflation expectations have dropped significantly, and the subsequent rise in CPI and PPI centers is a high probability event

Data released this morning by the National Bureau of Statistics showed that in August, national consumer prices (CPI) rose 0.1% year-on-year and 0.3% month-on-month. Among them, urban areas increased by 0.2% year-on-year, and rural areas decreased by 0.2%; Food prices fell by 1.7% and non-food prices rose by 0.5%; Consumer prices fell 0.7 percent and service prices rose 1.3 percent. On average in January ~ August, the national consumer price increased by 0.5% over the same period of the previous year.

In August, the national industrial producer ex-factory price (PPI) fell by 3.0% year-on-year and increased by 0.2% month-on-month; Industrial producer purchase prices decreased 4.6% year-on-year and rose 0.2% month-on-month. On average in January ~ August, the ex-factory price of industrial producers decreased by 3.2% compared with the same period of the previous year, and the purchase price of industrial producers decreased by 3.6%.

The August CPI rose 0.1% year-on-year and 0.3% month-on-month, in line with market expectations

The rebound in pork prices pushed food prices back month-on-month. Food prices rose 0.5% month-on-month in August, lower than the historical average of 1.3% month-on-month increase in August, mainly due to the weaker month-on-month increase in fresh vegetables and fresh fruits than seasonality. However, the month-on-month rebound in pork prices supported food prices to some extent.

Following the bottoming out in July, pork prices rose 11.4% month-on-month in August, narrowing their year-on-year decline to 17.9%. From the perspective of the cycle, the continued low pork price in the first half of the year accumulated the hope of the breeding end, with the development of the central reserve pork storage policy, last month began the market pressure to sell and secondary fattening led to a short-term decline in pork supply, forming a small cycle of price increases.

The prices of fresh vegetables, fresh fruits, eggs, etc. are weaker than seasonal. Affected by typhoons and other weather factors, fresh vegetable prices rebounded seasonally in August, up 0.2% month-on-month, but significantly lower than the average increase of 6.3% in the same period in history. Fresh fruit supply was abundant, down 4.4% month-on-month, which was also greater than seasonality; Egg production declined in hot weather, with eggs up 7.0% month-on-month, but slightly below seasonality. On the whole, the current supply security margin of various types of food is high.

Energy prices rebounded. Driven by the rise in international oil prices, the price of refined oil products in mainland China has risen for five consecutive times since the end of June, including two jumps in August, driving up energy prices. Fuel for transportation rose 4.8% month-on-month in August, while the year-on-year decline narrowed to 4.5% from 13.2% in the previous month. Under residential items, hydropower fuel increased by 0.3% month-on-month, and the year-on-year growth rate also rebounded to 0.3%.

After a strong rebound in July, the core CPI was stable in August. The core CPI, which excludes food and energy, was flat in August, up 0.8% year-on-year, unchanged from July's gains. From a structural point of view, the demand for summer services is strong, but the weakness of consumer goods drags down the recovery of core CPI.

Consumer durables performed weaker than July. Among the "three major consumer resistant items", household appliances decreased by 0.6% month-on-month, and the year-on-year decrease increased by 0.2 percentage points to 2.0%; Transportation decreased by 0.3% month-on-month, and the year-on-year decrease increased by 0.1 percentage points to 4.5%; Communication tools decreased by 0.8% month-on-month, expanding by 0.4 percentage points year-on-year to 3.0%. The three consumer durables were lower than the historical average for the same period. After a month-on-month recovery in July, some consumer resistance demand has been released early, resulting in weaker prices in August.

Other consumer goods performed steadily. The discount season in August is coming to an end, and clothing fell by 0.1% month-on-month, which is weaker than the seasonality; Traditional Chinese medicines rose 0.8% month-on-month, while Western medicines were flat month-on-month, pushing medical prices up slightly month-on-month. Household goods and services decreased by 0.3% month-on-month, and household appliances (-0.6% qoq) and household services (+0.2% qoq) are expected to decline month-on-month.

Service prices support core CPI. Service prices rose 0.1% month-on-month in August, basically in line with the average month-on-month increase in the same period of history, up 1.3% year-on-year, up 0.1 percentage points from July. From the perspective of sub-items, the consumption expenditure of summer residents' services rebounded, and tourism increased by 1.4% month-on-month, which was significantly higher than the average month-on-month increase in the same period in history. Home services rose 0.2% month-on-month, education services rose 0.1% month-on-month, and medical services rose 0.1% month-on-month. Rent prices rose 0.1% month-on-month, marking the third consecutive month of month-on-month recovery.

Overall, after a brief period of negative growth in July, the CPI turned positive year-on-year in August, confirming that after a series of counter-cyclical policies, mainland residents' demand has picked up. However, from a structural point of view, the rebound in pork prices in food and the recovery of energy prices are the most important reasons for the CPI to come out of deflation. At the same time, the core CPI was flat month-on-month and unchanged year-on-year, services were strong but commodities were weak, and the overall stability was stable but not strong, so it was necessary to stabilize growth and expand domestic demand policies to continue to maintain strength.

The August PPI fell 3.0% year-on-year and rose 0.2% month-on-month, in line with market expectations

In August, international commodity prices rebounded as a whole, crude oil rose, natural gas prices showed a volatile pattern, and major metal prices were mixed. The overall performance of domestic industrial prices was slightly stronger than that of the international industry, mainly due to the lagged transmission impact of global industrial product price increases and the marginal improvement in domestic demand.

The means of production turned up month-on-month, and the year-on-year decline narrowed sharply. The price of means of production in August rose 0.3% month-on-month and fell 3.7% year-on-year, a decline of 1.8 percentage points from the previous month. Among them, the extractive category rose 0.8% month-on-month, down 9.9% year-on-year, a decline of 4.8 percentage points from the previous month; raw materials rose 1.4% month-on-month, down 4.0% year-on-year, a decline of 3.6 percentage points from the previous month; and processing fell 0.2% month-on-month, down 3.1% year-on-year, a decline of 0.7 percentage points from the previous month. Oil and gas prices, which are highly correlated with international prices, rose month-on-month, dominating upward pressure on upstream industrial prices, but domestic coal prices remained stable.

The price of living materials rose slightly month-on-month, and the improvement in downstream prices was weaker than that in the upstream. The ex-factory price of living materials rose 0.1% month-on-month in August, a lower increase than in July, and the year-on-year decline narrowed by 0.2 percentage points from the previous month to 0.2%. Among them, food rose 0.6% month-on-month, up 0.3 percentage points from July; general daily necessities decreased 0.3% month-on-month, up 0.2% in July; Clothing decreased by 0.2% month-on-month, rising 0.6% in July; Consumer durables fell 0.3% month-on-month, compared with a 0.2% increase in July. Living materials were weaker than in July, mainly due to relatively weak prices of non-food items.

In August, the purchase price index of industrial producers fell by 4.6% year-on-year, a decrease of 1.6 percentage points greater than the ex-factory price, and the "negative scissor difference" between upstream and downstream was 0.1 percentage points narrower than the previous month. However, the decline in downstream prices is still smaller than that of the upstream, which is conducive to the improvement of profits of middle and downstream industrial enterprises.

Overall, the year-on-year decline in PPI in July and August has continued to narrow, and the bottom of the cycle of year-on-year PPI growth in June has been basically confirmed. This month's month-on-month recovery in global energy prices has pushed industrial upstream prices to pick up, coupled with a significant decline in last year's base, which has contributed to a significant narrowing of the degree of deflation in industrial prices this month.

Inflation Outlook: The current mainland economy does not have a basis for long-term deflation

In August, the CPI turned positive year-on-year, the year-on-year decline in PPI narrowed significantly, and the overall economic deflation expectation also fell sharply. The subsequent rise of CPI and PPI centers is a high probability event, and the current mainland economy does not have a basis for long-term deflation.

First, the current international energy prices are still rising, under the continuous support of the expected soft landing of developed countries and the reduction of production in oil-producing countries, international oil prices have retouched $90, and in the short term, mainland non-core inflation factors may continue to rise. Second, the mainland's recent steady growth policies have been introduced one after another, especially the increase in the special additional deduction standard for personal income tax, and the reduction of interest rates on existing housing loans, which will promote residents' income, stimulate consumer demand, and drive core inflation to pick up. Third, in the long run, the combination of policies such as "31 policies to support the development of the private economy", "stable employment to a strategic height", "real estate package policies", "strengthening strategic emerging industries" and "activating the capital market" will also play a positive role, and the mainland's economic fundamentals will continue to improve. (Minbc Research)

This article originated from the financial world