The CPI has risen for the third month in a row, but this is not good news

Luo sir's words

2024-05-15 17:58Posted in Sichuan Workplace Creators

The consumer price index (CPI) rose 0.3% year-on-year in April, rising for the third consecutive month, but the specter of deflation may be a structural problem.

According to the data released by the Bureau of Statistics last Saturday, the consumer price of the mainland rose by 0.3% year-on-year in April this year, which is the third consecutive month that the consumer price index (CPI) has shown an upward trend.

Among them, the urban area increased by 0.3%, and the rural area increased by 0.4%; Food prices fell by 2.7 percent and non-food prices rose by 0.9 percent; Consumer goods prices were flat, while service prices rose by 0.8 percent.

From January to April this year, the average national consumer price rose by 0.1 percent over the same period last year.

Judging from the chart of the rise and fall of the national consumer price provided by the Bureau of Statistics, after the CPI fell to 0 points in September 2023, the national consumer price showed a downward trend all the way, falling to a low of -0.8% in January 2024, and did not reverse the situation until February and turned back to the positive range.

Today, the CPI has risen for three consecutive months, but the slight increase of a few tenths of a day may highlight the long-term deflation risk faced by the mainland, and even the structural problems behind it.

In addition to the CPI, the producer price index released on the same day continued to show a downward trend. In April, the ex-factory prices of industrial producers fell by 2.5 percent year-on-year, and the purchase prices of industrial producers fell by 3.0 percent year-on-year, which were 0.3 and 0.5 percentage points narrower than those of the previous month.

These price indices show that domestic demand is recovering, and the prospects for recovery are objective, but the biggest problem is still low consumer prices.

This is an important point.

The root cause behind the low consumer prices is that there is a problem with demand; The reason for the problem in demand is the downturn in real estate.

Real estate accounts for a large part of the family asset structure in mainland China, and now with the continuous decline in real estate prices, real estate purchase restrictions have been completely canceled in various places, which has also triggered a wave of second-hand housing sales.

In Hangzhou, for example, after the announcement of the complete lifting of purchase restrictions, the number of second-hand housing listings soared by 91% the next day.

The more real estate sells, the faster house prices fall, which is a very basic market logic. And once housing prices fall, trillions of family wealth will evaporate behind it.

Household wealth falls as house prices fall, and consumption and demand naturally become depressed, which is a cyclical and structural problem of deflation.

In addition, considering the speed of issuance of M2 in the mainland, the slight increase in CPI does not have an obvious advantage, of course, the decline in housing prices has not only led to the shrinkage of private wealth, but more importantly, the income from land sales that the local government relied on for a living in the past has also begun to decline.

This raises another problem: when local fiscal pressures begin to materialize, this may lead to them having to pass on these additional costs to households in order to keep local finances balanced.

This is also another trend that may occur in the future: that is, the price of infrastructure construction in the mainland has begun to rise, which is a last resort but has to be done under the local income increase.

Especially when superimposed on the current increasing local debt.

According to estimates, the total amount of debt accumulated by the mainland has reached $13 trillion, and some heavily indebted localities have begun to postpone or stop some infrastructure projects in order to increase revenue and reduce expenditure.

Of course, the most important point is that in 2023, while European and American countries are generally facing inflationary inflationary pressure, the mainland is in a deflationary crisis.

On the one hand, inflation and deflation on the other hand, this contradiction has undoubtedly increased the mainland's export advantage, which has also triggered the collective tariff condemnation in Europe and the United States.

In the past, we may not have been so afraid of trade tariffs in Europe and the United States; However, at such a juncture, with the lack of domestic demand in the mainland and the continuous growth of production capacity, it is urgent to rely on exports to drive economic growth and capacity digestion at this time.

If the trade tariffs between Europe and the United States are increased at this time, it will not be good news for the mainland's trade exports, as well as for production capacity and employment.

In the end, it is better to rely on people and exports, so it is particularly important to stimulate consumption.

In the past few months, the mainland has also adopted a series of stimulus measures to boost private consumption, but in the face of the overall sluggish economic situation and the job market, people are still cautious about purchasing large goods.

Just last Friday, the People's Bank of China (PBOC) released its monetary policy report for the first quarter of this year. The report pointed out that in the first quarter, "the prudent monetary policy was flexible, moderate, precise and effective", which "created a good monetary and financial environment" for the economic recovery, and the central bank cut the reserve requirement ratio by 0.5 percentage points at the beginning of this year.

The RRR was lowered to stimulate consumption, rather than keeping cash in banks; But the data shows that Chinese people have deposited the largest amount of cash in the bank on record, totaling more than 140 trillion yuan, which is higher than the mainland's total GDP in a year.

Deposits have not been reduced despite the continuous reduction of bank interest rates, which also shows that stimulating consumption itself is more difficult than we imagined.

Why is it difficult to stimulate consumption? At the end of the day, it may be about income.

Ten years ago, the monthly income of tens of thousands of dollars discussed may be more difficult today, at least for ordinary people. Almost ten years ago, online car-hailing drivers could easily earn tens of thousands of dollars a month under the tens of billions of subsidies on the ride-hailing platform, which was the closest ordinary people came to getting rich.

But today, ten years later, if an online car-hailing driver wants to earn tens of thousands of dollars a month, it means that it will take up to more than ten hours and almost all the whole month to achieve it.

On the one hand, people's incomes are relatively low, and on the other hand, due to the impact of the real estate downturn, local finances are under great pressure, and it is also possible to pass on the cost to consumers.

The increase in the price of the utility sector is a good opportunity.

Recently, it has been rumored that a certain place has solicited a price increase in tap water, and all the representatives have agreed to increase the price of the incident, which will not be the first, nor will it be the last, after all, there is natural gas in the front, and the tap water and electricity bills may be reasonable.

On the one hand, the public utilities sector has begun to increase prices, and on the other hand, the income of residents is low, which also leads to the fact that we can only do anything to stimulate consumption.

Deflation, which essentially means underconsumption, leads to overcapacity, and we see a decline in food prices in more niche markets below the narrow percentage point of CPI growth.

This series of structural deflationary risks has brought us a lot of cyclical troubles; For example, the decline in real estate prices has led to the shrinkage of the wealth of mainland residents, and the structural stagnation of income, in an era of uncertainty, will positively strengthen people's concept of consumption downgrade.

In turn, the decline in local revenues due to the decline in real estate may lead to higher prices in some utilities, which in turn will increase the cost of living for residents.

Under the interlocking of these factors, the three-month CPI rise seems to be good news, but the structural problems highlighted behind it are still very serious.

How can lost local income be compensated? As infrastructure investment begins to decelerate, how can insufficient private investment boost economic growth? People's incomes are still low, and the social security system is weak, where to stimulate consumption?

The aging of the population in the short, medium, and even long-term period will become an unfavorable factor dragging down the mainland's macroeconomic growth, and in order to thoroughly solve this series of structural problems, I am afraid that we cannot simply tinker with them, and we must carry out drastic deep-water innovation in order to break the situation.

end.

Author: Luo sir, concerned about the economy, society and everything in our world, curious about the logic behind the development of things, optimistic pessimist.

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