Halfway through 2024, is China out of the "technical deflation" dilemma? Unfortunately, we still have work to do.
China's economy, how to get out of technical deflation
According to the data of the National Bureau of Statistics on the 10th, in June 2024, our CPI will rise by 0.2% year-on-year, and the increase will fall by 0.1%; The PPI fell by 0.8% year-on-year, narrowing the decline by 0.6%.
A simple analysis of the data, then last month's inflation data of 0.2% is not what we want to see, because it is a symptom of the continuation of technical "deflation".
The CPI and PPI are mediocre and remain low
And the narrowing of PPI in the manufacturing industry is really a good thing?
On the surface, this is so, but combined with other factors, China's manufacturing industry as a whole is still in the stage of "need to work hard".
Therefore, today, through the CPI data in June, combined with other economic data in June, we will talk about our "deflationary defense war" this month.
The battle for deflation has begun! How to interpret the CPI in June?
What exactly is the inflation data for June? In fact, the answer is unsatisfactory.
As we all know, China's inflation data generally accounts for pork dominantly, that is, if the price of pork rises, then the price of CPI will generally rise sharply.
In June, pork prices rebounded sharply
But this was not the case in June.
Because, although the price of pork rose by 16.1% this month, the price of other commodities fell even more, which directly led to a 0.1% decline in CPI.
For example, the price of vegetables fell by 7.3%, potatoes fell by 4.8%, fresh fruits fell by 3.8%, shrimp fell by 2.4%, etc., and these factors combined caused the CPI index to fall by 0.25%, exceeding the increase in pork by 0.14%.
The prices of meat and vegetables are falling, and the prices of other commodities are actually falling.
Because June just caught up with the big promotion of e-commerce goods, the June 18 promotion combined with the tens of billions of subsidies from major platforms led to a decline in the sales price of goods, resulting in a contraction of CPI.
Various 6.18 promotions have reduced the unit price of goods
Of course, the problem of technological deflation cannot be dumped for e-commerce promotions, and the lack of domestic demand and the structural contradiction of more supply have not changed, which is the fundamental cause of technological deflation. This must be made clear.
What's more, the CPI in June last year was already very weak, so this means that the CPI in June is actually a low base on the already low base, which is weak and weak, so this is a bit troublesome.
Looking at the PPI index, PPI is the manufacturing industry, before our PPI has been negative growth, that is, the recession stage, and in June, although the PPI still contracted by 0.8%, but the data is indeed narrowing.
However, does this mean that China's manufacturing industry has rebounded greatly?
First of all, the performance of PPI this month is based on the previous low base, and from the perspective of month-on-month growth, it was positive growth in May, while the month-on-month data fell by 0.6% in June, so it was contracted.
The development of the manufacturing industry in June was also relatively average
There are many reasons, the weakening of international oil prices, heavy rain weather has led to a decrease in start-up, so the demand for cement and other building materials products has decreased, and the price has also fallen, and the decrease in demand has directly led to the decline in production prices.
Therefore, on the whole, the performance of CPI and PPI is actually relatively weak, although the price of pork has risen, but due to insufficient demand, as well as increased supply, and the reason for the decline in the price of other products.
Is China facing deflation? How to solve the deflationary problem?
In fact, strictly speaking, although China is facing deflationary pressure, it has not completely entered the deflationary dilemma.
Because the criterion for judging deflation is that with the decline in the overall price level, China's economic money supply continues to decline, and although China's M2 growth rate is not as high as the previous monthly growth rate of more than 10%, it is actually very high compared with other countries.
Although M2 social finance is declining, there are still more cross arms
But, despite this, deflationary pressures are still there and have caused great distress to China's economic recovery.
What's the problem?
In the case of deflation, consumers will expect to buy services and goods at lower prices, so we see that PDD and Taobao are engaged in low prices, subsidies, and discounts to promote, which is to cater to the needs of consumers for "consumption downgrade".
The decline in commodity prices actually means that the profits of enterprises are reduced, and the costs of enterprises are actually relatively fixed, which will lead to a decrease in corporate profit margins, so if you look at the recent financial reports of listed companies, profits have fallen more and risen less.
If you want to understand the trend, look at the trend chart below, which shows that our company's revenue growth rate is average, and the profit growth rate has turned positive from negative, but due to the low base before, this year's low growth rate means that we have not warmed up in an all-round way.
Growth in the profit margin of Chinese companies.
For example, under deflationary conditions, it will lead to an increase in the debt ratio of residents, such as the fall in real estate prices, which is actually a manifestation of social deflation.
There are also negative effects, such as discouraging corporate investment, leading to a loss of confidence in the economy among entrepreneurs and consumers. So for the United States, inflation is a crisis, and for China, deflation is the enemy.
Closer to home, how do we solve the deflationary problem now in June?
To break deflation, in the final analysis, it is to make residents willing to consume and enterprises willing to invest.
Real estate industry
For us ordinary people, the most important thing is to promote employment and increase income. When it comes to concrete examples, governments can use monetary and fiscal means to stimulate and build more projects to create social demand.
For example, if there are serious floods recently, then you can spend money on water control, build dams, repair reservoirs, create demand, and avoid dam failures, etc., which will directly create more jobs. Increase people's income.
For example, for entrepreneurs, the top management should also protect the interests of private enterprises, while giving entrepreneurs dividend policies and confidence, such as sharing a part of the industry and projects to private enterprises, so that they are willing to invest, dare to invest, so as to recruit employees and expand investment.
The above words are of course more traditional ideas, but now experts say that the central bank needs to make greater efforts to print money and release water, so that the people know that saving money by themselves will only depreciate the value of deposits, but spending money is the king.
The central bank is not waterproof, and experts are in a hurry
What does that mean? In fact, Japan has also experienced a situation similar to China's, and from the perspective of the effect, Japan has adopted the method of unlimited easing and water release, and continuously stimulates consumption through low interest rates.
What this expert means is that China, like Japan, will continue to work hard to spend money, and the more the fiscal spends, the higher the market income, the better the economy, so as to change the current situation of declining income, increasing expenditure, and insolvency.
But is it the right thing to do? Not necessarily.
First of all, the central bank has always wanted to release water, for example, several years ago, the central bank has been cutting the reserve requirement ratio and interest rates, and many of the headlines at that time were the news of the central bank cutting interest rates.
The central bank also wants to release water, but it needs to keep an eye on the exchange rate
However, although the interest rate cut policy is good, it cannot be used more, and the consequence of using more is that the marginal benefit is diminishing and the effect is reduced, so even if the central bank cuts interest rates now, it is not a big benefit.
Moreover, too many rate cuts are not necessarily useful, so why did M2 supply fall from more than 10% to 6.8% in June? Because the money supply in society is already very large.
In fact, the domestic infrastructure and manufacturing industry have been expanding wildly since 21 years, but who would have thought that the subsequent epidemic and anti-globalization upgrades would lead to the lack of release of the expanded production capacity, resulting in deflation.
Therefore, many industries do not need capital, and even need to withdraw capital to curb investment, so as to reduce production capacity. For example, China's photovoltaic is very powerful, and it is constantly exported abroad.
But do you know that the capacity expansion strategy in 2021 has directly led to a serious involution of domestic photovoltaic enterprises, and profits have plummeted, and many industries are actually the same, in 2021, we have undertaken too many orders, resulting in the expansion of the manufacturing industry. I can't digest it until now.
Photovoltaic production capacity has increased significantly, and the involution is serious
Many people say that enterprises need funds, but in fact, most companies have not been able to digest the previous investment, and they are still involuting.
This means that the central bank continues to release water, except for leading to financial idling and capital precipitation, there is nothing much good, and even because of inflation, the savings of our ordinary people will be harvested, the purchasing power will be reduced, and the hard work for decades will be old-aged, and there will be nothing left diluted by inflation.
This is why the central bank is more cautious, not like the experts suggested to engage in "big water release", as a comparison with why the elderly in Japan have to come out to work? This is the reason for the depreciation of yen inflation.
How long will the deflationary war last?
So, how long will this deflationary problem last? Unfortunately, there is no way to predict accurately.
But there are still standards, one is that if the central bank's monetary policy turns around and starts to release water to save the economy, then deflation will soon disappear, which is to exchange the depreciation of the RMB for economic growth.
After the Fed cuts interest rates, we can follow suit
This situation will unfold after the Fed cuts interest rates, because waiting for the US to cut interest rates, and then we cut interest rates, which can reduce the pressure on the depreciation of the yuan.
Now, the rate cut in the US may be in September or November, which means that we will wait at least two months for an improvement, and it is possible to wait for more than half a year and so on.
Recall that at the beginning of this year, officials from the Bureau of Statistics said that China's technical deflation problem would be resolved by the end of the year, when our inflation rate would pick up to about 1%.
China's economy, come on!
Therefore, I also hope that with the continuous release of favorable policies and the central bank's interest rate cut at the end of the year, China's economy will be able to get out of the technical deflation that has been close to more than one year, and only in this way will the employment and living environment of our ordinary people be thoroughly improved!
Finally, I also wish China's economy to come on, as ordinary Chinese, we can't lie flat, we still have hope for the national economy!
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