Macro Team of Wen Caixin Research Institute
Wu Chaoming Li Mo
Core ideas
Pork led food prices up month-on-month, but the abundant supply of fruits and vegetables made their growth weaker than the same period in history. Among them, pork prices turned from flat to 11.4% month-on-month, weakening the negative drag on CPI by 0.13 percentage points; affected by sufficient supply, fresh vegetable prices were significantly lower than the average value of the same period in history, and fresh fruit prices continued to decline month-on-month, and the pulling effect of both on CPI fell by 0.11 percentage points year-on-year. Summer travel demand continued to support service price increases, and the drag on oil prices weakened significantly, with non-food contributed to the entire year-on-year increase in CPI this month. However, the core CPI continues to be in the "zero" era, reflecting that the problem of insufficient domestic demand is still prominent.
Second, the CPI is expected to increase to about 0.2% in September, and it is expected to reach about 1% by the end of the year. First, it is expected that the month-on-month growth rate of food in September will narrow; Second, there is still some room for pork prices to rise in the future supported by holiday demand, but affected by last year's higher base, its pulling effect on CPI year-on-year may continue to be negative; Third, it is expected that the recovery of the service sector and the weakening of the drag on oil prices will support non-food prices, but the slope of recovery may remain moderate; Fourth, the CPI tail factor in September fell by 0.3 percentage points compared with August.
Third, the low base effect and domestic and foreign factors support the decline in PPI to continue to narrow. The year-on-year decline in PPI in August narrowed by 1.4 percentage points to -3.0%, with rising international crude oil prices, recovery in domestic demand, and continued weakening of the drag of tail factors. In terms of industries, the price of upstream crude oil chain, colored chain and black chain industry has risen significantly, and domestic and foreign factors have formed a certain support; Most of the prices of middle and downstream industries such as clothing and accessories, computers, communications, and electronics have fallen, reflecting that the recovery of domestic demand is still weak to support the prices of terminal products.
4. It is expected that the PPI decline will continue to narrow to about -2.4% in September, and the growth rate will remain negative for several months during the year. First, the PPI tail factor in September increased by 0.1 percentage points compared with August, and the impact on the PPI growth rate tends to weaken; second, it is expected that short-term international commodity prices may continue to fluctuate at a high level, forming a certain support for the new PPI price increase factor; third, the release of infrastructure investment demand will support domestic industrial product prices, but the recovery momentum is still facing the constraints of the real estate downturn.
V. Summary: Affected by the gradual effectiveness of a series of stimulus policies and the increase in demand, domestic inflation will enter a recovery channel in the next few months, but the upward range is still facing the pincer of insufficient demand, and it is expected that the CPI is expected to reach about 1% by the end of the year, and the negative growth pattern of PPI throughout the year remains unchanged.
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Events: In August 2023, the national consumer price index (CPI) increased by 0.3% month-on-month and 0.1% year-on-year, an increase of 0.4 percentage points from the previous month; the industrial producer price index (PPI) increased by 0.2% month-on-month and decreased by 3.0% year-on-year, a decrease of 1.4 percentage points from the previous month.
First, the increase rate of food is weaker than seasonality, and non-food is the main reason for the positive CPI, and the CPI is expected to increase by about 0.2% in September
Pork led food prices up month-on-month, but sufficient supply weakened it seasonally. Food prices in August turned from a decline of 1.0% to an increase of 0.5% month-on-month, but it was 0.8 percentage points lower than the average for the same period in 2001-22, and the year-on-year decline was unchanged from -1.7% in the previous month, affecting the CPI by about 0.31 percentage points (see Figure 1). Among them, affected by factors such as extreme weather impact supply, farmers' reluctance to sell and central storage, pork prices turned from flat to 11.4% month-on-month, and the year-on-year decline narrowed by 8.1 percentage points to 17.9%, and the negative drag on CPI year-on-year narrowed by 0.13 percentage points from the previous month; fresh vegetable prices turned from -1.9% to 0.2% higher than the previous month. However, it was 6.0 percentage points lower than the average value of the same period in 2008-22, and its year-on-year price decline expanded by 1.8 percentage points to -3.3%, and the negative drag on CPI expanded by 0.04 percentage points; affected by sufficient supply, fresh fruit prices continued to fall month-on-month, narrowing by 3.7 percentage points to 1.3%. The year-on-year pulling effect on CPI fell by 0.07 percentage points from the previous month; other major food prices were mixed month-on-month, and the pulling effect on CPI year-on-year changed little (see Figure 2-3).
Services and energy pushed up non-food prices, which were the main contributors to the CPI recovery this month. Non-food prices increased by 05% year-on-year in August, up 0.5 percentage points from the previous month (see Figure 4), and the pulling effect on CPI year-on-year increased by 0.4 percentage points from the previous month (see Figure 1), which was the main driving force for the CPI recovery this month. The rebound in non-food prices is mainly due to the recovery of service prices and the sharp weakening of the drag on oil prices: First, summer demand continues to support the recovery of service prices. Specifically, service prices rose 1.3% year-on-year in August, the highest since February 2022, supporting food prices; Second, affected by the low base in the same period last year and the rise in international oil prices, the year-on-year decline in transportation fuel in August narrowed by 8.7 percentage points to 4.5%, and the drag on non-food prices was significantly weakened; Third, affected by the poor employment-income-consumption cycle of domestic residents, the prices of industrial products excluding energy continued to be sluggish, such as CPI household appliances falling by 0.2 percentage points year-on-year to -2%.
The core CPI continues to be in the "zero" era and is expected to gradually return to the "1" era during the year. The core CPI, which excludes food and energy, rose 0.8% year-on-year in August, unchanged from the previous month (see Figure 5), continuing to be in the "zero" era, reflecting the lack of domestic demand. Looking forward, with the implementation of a series of consumption promotion policies and the further liberalization of consumption scenarios, as well as the arrival of consumption and tourism seasons in the third and fourth quarters of the year, the service industry and household consumption will continue to recover in the future, and the stabilization and recovery of core CPI is a high probability event, but the release of consumption potential still faces the constraint of slow recovery of the "employment-income-consumption" cycle, and the repair speed should not be overestimated, and it is expected that the core CPI will gradually rise back to the "1" era within the year.
The September CPI is expected to increase by about 0.2% year-on-year. First, it is expected that the month-on-month increase in food in September will narrow. According to the data of the Ministry of Agriculture, as of September 8, the price growth rate of 28 key monitored vegetables, 7 key monitored fruits and pork was 4.4%, -4.0% and 0.3% respectively. Second, it is expected that under the support of holiday demand, pork prices still have some room to rise, but affected by the sharp increase in the base last year, it is expected that pork's pulling effect on CPI will continue to be negative in the future; Third, the recovery of demand in the service industry, the rise in international energy prices and the gradual fading of the high base effect of energy prices last year have all formed an upward support for non-food prices, but the recovery of household consumption demand is still on the way, and it is expected that the recovery of non-food prices should not be overestimated; Fourth, the CPI tail factor in September fell by 0.3 percentage points compared with August (see Figure 6).
Second, the base effect and domestic and foreign factors support the decline in PPI to continue to narrow, and it is expected that PPI growth in September will be about -2.4%.
Affected by the recovery of domestic demand, rising international crude oil prices and the continued weakening of the drag of tail factors, industrial producer prices (PPI) fell by 3.0% year-on-year in August, a decline of 1.4 percentage points from the previous month. Among them, the means of production and means of living decreased by 3.7% and 0.2% respectively year-on-year, and the decline was 18 and 0.2 percentage points narrower than that of the previous month. From a month-on-month perspective, the means of production turned from a decrease of 0.4% to an increase of 0.3%, and the growth rate of means of living narrowed by 0.2 percentage points to 0.1%, and means of production were the main reason for the narrowing of the year-on-year decline in PPI and the positive month-on-month. In the means of production, the prices of extractive industries and raw material industries turned positive month-on-month, the decline rate of processing industries narrowed, and the month-on-month growth rate showed the characteristics of raw material industry> extractive industry > processing industry. In the materials of living, in addition to the month-on-month increase in food prices, the prices of clothing, general daily necessities and durable consumer goods all recorded negative growth month-on-month, indicating that the lack of demand and the insufficient upward momentum of downstream terminal products (see Figure 8).
From the perspective of the industry, domestic and foreign factors jointly support the price increase of the upstream industry, but the middle and downstream demand is still weak. First, affected by the upward trend of international crude oil prices, the domestic crude oil chain industry price rose at a higher rate month-on-month, which was the main support for PPI to turn positive month-on-month. For example, the prices of oil and gas extraction, petroleum, coal and other fuel processing industries, and chemical raw material processing industries increased more month-on-month. Second, affected by the acceleration of domestic infrastructure construction, the prices of non-ferrous metal mining and dressing industry, ferrous metal mining and dressing industry, non-ferrous metal processing and rolling industry have also risen more. Third, affected by the lack of domestic demand, most of the price growth rates of the middle and downstream industries fell month-on-month, and the supporting effect on the growth rate of PPI was weak.
PPI growth in September is expected to be around -2.4%. First, the PPI tail factor in September increased by 0.1 percentage points compared with August (see Figure 10); second, it is expected that in the future, international commodity prices will face a situation where demand resilience exceeds expectations and supply continues to tighten, and short-term international commodity prices will still fluctuate at a high level, which may have some support for the new price increase factor of PPI; Third, the release of infrastructure investment demand will support domestic industrial product prices, but dragged down by the downturn in the real estate market, the recovery momentum of domestic pricing upstream industrial products may still be weak.
Third, it is expected that the negative scissor gap between PPI and CPI will continue to narrow in the future, and the drag on the profits of industrial enterprises will weaken
The difference between PPI and CPI scissors reflects the change in the profit space of industrial enterprises to a certain extent. The widening of the PPI and CPI scissor gap usually means a continuous repair of corporate profits and economic momentum, and vice versa (see Figures 11-12). After the epidemic, the current round of PPI and CPI scissor gap has undergone a process of expansion-narrowing, the expansion stage is mainly driven by the price increase of upstream raw materials, the structural characteristics are significant, not a comprehensive price increase, the corresponding decline stage is mainly dominated by a high base, and the price increase driven by the recovery of domestic demand is not obvious. In the case of weak recovery of domestic demand, the ability of the middle and downstream industries to transfer costs is still weak, resulting in a strong squeeze effect on the profits of the middle and downstream of the rising upstream raw materials, which in turn suppresses the willingness of the middle and downstream enterprises to invest and expand production, which is not conducive to the recovery of domestic economic momentum.
The scissor gap between PPI and CPI narrowed to -3.1% in August from -4.1% in the previous month, and the scissor gap between the two narrowed for two consecutive months. It is expected that CPI and PPI will bottom out in the future, but PPI will recover relatively faster due to the tail factor, and the negative scissor difference between the two will continue to narrow, and the drag on the profits of industrial enterprises may weaken.
This article is selected from the Brokerage Research Report