Pork prices fell 26.1% year-on-year in December, will they rebound in 2024?

Source of this article: Times Finance Author: Alimire

For the whole year of 2023, the CPI will increase by 0.2% over the previous year, and the effect of stabilizing prices will continue to appear, and the overall consumer market will continue to recover.

On January 12, data released by the National Bureau of Statistics showed that in December 2023, affected by factors such as cold wave weather and increased consumer demand before the holiday, the consumer price index (CPI) turned from a decline to an increase month-on-month, and the year-on-year decline narrowed.

In December, the CPI fell by 0.3% year-on-year, 0.2 percentage points narrower than the previous month. The core CPI, which excludes food and energy prices, rose 0.6% year-on-year, and the rate of increase remained stable. On a month-on-month basis, the CPI rose 0.1% from a 0.5% decline in the previous month.

Specifically, among the food, the price of pork fell by 26.1%, narrowing by 5.7 percentage points, affecting the CPI to decline by about 0.43 percentage points, which was the main factor driving the year-on-year decline in CPI, and the prices of eggs, beef and mutton, edible oil and poultry meat fell between 1.7% and 8.4%.

Non-food prices rose by 0.5%, an increase of 0.1 percentage points from the previous month, affecting the CPI to rise by about 0.38 percentage points. Among the non-food products, the prices of Chinese herbal medicines rose by 17.7 percent, down from the previous month, while the prices of fuel vehicles and new energy vehicles decreased by 6.4 percent and 5.4 percent respectively, and the decline rate expanded.

"Looking forward to 2024, it is expected that the year-on-year growth rate of CPI will turn from negative to positive, showing a trend of low before and then high, and maintain an overall growth rate of 0.5-1%, and the volatility of international crude oil and other commodity prices will drive the volatility of the industrial producer price index (PPI) to intensify, and it will remain low in 2024. Zheng Jiawei, chief of fixed income of Yongxing Securities, said in an interview with a reporter from Times Weekly.

CPI rises 0.2% year-on-year in 2023

As an important indicator reflecting consumer demand, the CPI has continued to be at a low level near 0 since the second quarter of 2023.

Specifically, in July 2023, the CPI will be negative year-on-year for the first time this year, turning from negative to positive to 0.1% in August, but it will fall to 0% again in September, and negative growth for three consecutive months in October, November, and December. As of December, PPI has been negative year-on-year for 15 consecutive months.

Analyzing the reasons, the CPI in 2023 will be at a low level year-on-year, behind which is the factors of poor expectations, insufficient effective demand, and oversupply in some areas. "Among them, affected by the high base, pork and crude oil prices have fallen, which has dragged down prices. On the whole, domestic consumer demand has recovered moderately, while the recovery of consumer demand has lagged behind production and supply, and prices have come under pressure. Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, told a reporter from Time Weekly.

"Last year's consumer price downturn slightly exceeded expectations, mainly due to the larger-than-expected decline in pork and crude oil prices, the high base, the moderate recovery of domestic consumer demand, and the abundant supply of daily necessities. Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, told a reporter from Times Weekly.

From the data point of view, pork prices, as the highest weight in food, will run at a low level in 2023. According to Mysteel's agricultural product data monitoring, as of December 6, the average price of foreign three-yuan pigs slaughtered in 2023 will be 15.03 yuan/kg, and the annual average price will be 3.77 yuan/kg lower than the same period in 2022, a decrease of 20.05%.

Judging from the overall trend of the whole year, there will only be two significant waves of pig price increases in 2023, which will occur in February and July.

Zhou Maohua analysis said that in February and July last year, pork prices rebounded in stages, mainly caused by short-term fluctuations in supply and demand, in February, farmers were reluctant to sell, frozen reserves increased, economic recovery and seasonal demand, etc., resulting in tight supply and demand; At the same time, the recovery of consumption, and the optimistic expectation of the improvement of seasonal pig consumption in the market, etc., have pushed pork prices higher in the short term.

All kinds of fresh pork sold in supermarkets Source: Picture Worm Creative

However, in terms of trends, pork prices are expected to improve gradually. "The market mechanism will promote the rebalancing of supply and demand in the pig market, pork prices continue to fall, and some of the serious losses of breeding capacity are withdrawn in an orderly manner, improving the market supply and demand barrier. The inventory of fertile sows has been declining month-on-month for 11 consecutive months, and the impact of the continuous decline in pig production capacity on pig prices is expected to gradually appear. Zhou Maohua said.

In fact, not only the price of pork and other food has fallen, since the beginning of this year, some durable consumer goods such as automobiles have also seen price reductions and promotions, which also reflects the current people's relative weakness in consumption, overcapacity and oversupply of goods.

According to incomplete statistics, since December 2023, nearly 20 car companies have launched price reduction promotions. Among them, not only representatives of new forces including Nezha, Zeekr, Geely, GAC Trumpchi, etc., but also joint venture brands such as FAW Toyota, FAW-Volkswagen, GAC Toyota, SAIC-Volkswagen, SAIC-GM, and SAIC-GM-Wuling.

"With the gradual implementation of the policy of expanding domestic demand, coupled with the increase in demand for holiday travel, entertainment and family services, consumption will gradually recover and continue to expand, and problems such as weak market demand are expected to gradually ease. Zheng Jiawei said.

The Politburo meeting held at the end of 2023 also pointed out that in 2024, it is necessary to promote consumption from post-epidemic recovery to continuous expansion, stabilize and expand traditional consumption, boost bulk consumption such as new energy vehicles and electronic products, increase the income of urban and rural residents, and expand the scale of middle-income groups.

What do you think about the follow-up trend?

As an important indicator of macroeconomic operation, CPI is generally closely related to economic growth and consumer income level. With the gradual development of the policy of expanding domestic demand, many analysts expect that in 2024, the CPI may maintain a moderate upward trend.

Wu Chaoming, vice president of the Finance and Credit Research Institute, pointed out in an interview with a reporter from Times Weekly that in 2024, pork and crude oil will turn from a drag factor in 2023 to a stable support factor, coupled with the overall recovery of domestic demand, CPI may gradually stabilize year-on-year. However, the smooth circulation of "employment-income-consumption" is still facing obstructions, and it is expected that the year-on-year increase in CPI in 2024 will be modest, with an annual growth rate of about 1%.

Specifically, food prices may rise slightly. In terms of pork, in 2024, the continued decline in the number of fertile sows and pigs will drive pork prices higher, however, the high concentration of the market will still lead to a slow rate of depletion, and the rebound in pig prices is expected to be limited. In terms of other foodstuffs, agricultural production across the country has remained stable in recent years, and it is expected that the prices of fresh fruits and vegetables will not change much.

Among the non-food items, commodity prices are likely to rise as the Federal Reserve pivots to interest rate cuts and major economies enter the restocking phase. At the same time, the EIA energy market analysis report also pointed out that international oil prices may rise slightly in 2024 due to the tight balance between crude oil supply and demand.

Wen Bin, chief economist of China Minsheng Bank, believes that from the perspective of the whole year, the CPI will rise by 0.2% in 2023, and there will be no rebound in inflation after the opening of the epidemic as expected at the beginning of the year. With the gradual development of the policy of expanding domestic demand and the impact of the dislocation factor of the Spring Festival, it is expected that the year-on-year CPI in February 2024 will most likely rebound to the rising range.

All kinds of vegetables sold at market stalls Source: Picture Worm Creativity

In terms of PPI, Wen Bin analyzed that from the perspective of the whole year of 2023, PPI will decline from -0.8% in January and bottom out rapidly, reaching a low of -5.4% in the middle of the year in May, and then rebounding to -2.7% in December driven by the rebound in crude oil, non-ferrous metals and other commodity prices and the decline in the base of the previous year, with an average annual decline of 3.0%, significantly weaker than 4.1% in 2022, reflecting that the current characteristics of abundant production capacity in the field of mainland industrial enterprises and weak downstream domestic and foreign demand still exist.

Looking forward to the next stage, it is expected that international commodity prices are expected to fluctuate and rise in 2024, a series of stable growth policies in the mainland are expected to drive investment to stabilize, downstream consumption is expected to gradually recover, and the low base will also produce positive support, and it is expected that PPI will slowly return to positive in 2024, or around the middle of the year.

Wu Chaoming also expects the year-on-year PPI to turn positive around the middle of this year. He pointed out that under the combined effect of the weakening of the drag of the tail factor, the fluctuation of crude oil prices, and the stimulus policy of domestic demand, the PPI is expected to gradually improve year-on-year. However, due to demand-side constraints, the recovery may be limited.

"From the perspective of the overall economic trend, in 2024, China's economy will generally show a repair pattern of 'endogenous power returns, external constraints still exist', and the momentum will gradually switch from policy support to endogenous cycle weak recovery, and the annual GDP is expected to grow by about 4.8%, with a stable trend in each quarter. Wu Chaoming said.