CPI "breaks 4".
According to data released by the National Bureau of Statistics the day before yesterday, the national CPI (Consumer Price Index) rose 4.5% year-on-year in November, and the increase expanded for nine consecutive months.
Data source: National Bureau of Statistics
The last time CPI was at a high of more than 4%, more than 7 years ago. That inflation cycle began in the second half of 2010 and did not ease until early 2012. Many ordinary people are familiar with CPI and even talk about it.
was the same as that time, and CPI had the nickname of "China Pig/Pork Index" .
Because pork is the largest single item in a basket of products that calculate CPI (about 2.5%), the pulling effect on CPI is extremely obvious. Haitong Securities once estimated that every 20% increase in pork prices will affect the CPI by about 0.6 percentage points. If the driving force on other food prices is taken into account, it may affect about 1 percentage point.
reality basically verifies this estimate. According to official data, the pork price rose by 110.2% year-on-year in November (compared with November last year, not with October this year), affecting the CPI rise by 2.64 percentage points. If the price increase of other livestock meat is included, it will affect the CPI rise by 3.27 percentage points, and poultry meat will be even higher.
Therefore, the 4.5% CPI increase is mainly due to the power of a pig.
In the last pig cycle, some pig farming industry insiders said: "The proportion of pork prices in CPI is too high, and the price of pigs seems too sensitive. The proportion should be lowered so that the country and industry can be relaxed." Now, this issue has come to us again.
Due to factors such as African swine fever and environmental protection rectification, the supply of live pigs has dropped sharply in the past two years, and the output, inventory and replenishment of stocks have all fallen, and pork remains high. According to the statement of the Ministry of Rural Agriculture: "Strive to basically restore the pig inventory to the level of about 80% per year by the end of next year" - focus on "Strive to", "basic", "80% per year" and "end next year" .
Chart source: BOCI Securities
So when will the pig price drop? When will CPI drop? This not only affects the daily lives of ordinary people, but also affects the difficulty of monetary policy operation.
Simply put, GDP growth rate is related to whether we have income to eat (China's high growth has been going on for many years, so people cannot perceive this correlation, and once it slows down significantly, they will be perceived), while CPI is related to what kind of meals can be eaten and how much can we eat.
Monetary policy is preferred to "maintain growth" rather than to "stabilize prices", especially for matters such as pig supply that cannot be managed. But on the other hand, no matter how the central bank pursues precise liquidity injection, monetary policy will inevitably affect CPI to more or less. So when the CPI is high, the central bank's operations will inevitably have concerns. Is it troublesome to
? A little troublesome. But is it a big deal? Compared with the strong storms and waves that China has experienced in the past, the 4.5% CPI increase is nothing.
Data source: National Bureau of Statistics
So, what will happen in the future? How to deal with it? Let's take a look at the big heads' opinions.
In the first half of 2019, CPI was in a moderate growth range overall. Entering the second half of the year, the rapid growth of pork prices has brought huge pressure to CPI. Since breaking through 3 in September, the year-on-year growth rate of CPI has continued to rise for two consecutive months, and the spillover effect of rising pork prices has continued to appear, and the prices of beef, sheep and chicken have also shown an upward trend, further boosting the growth rate of CPI.
For this reason, some people will say, "The price of pork causes CPI to be too distorted. Is it time to say goodbye to pork?" I don't think this is the case.
The most urgent task is to strengthen the domestic pig industry chain, from breeding to processing, slaughtering, to meat product supply, and protect the interests of retail pig farmers, etc., so that the upstream, middle and downstream of the pork industry can form a close community of interests to resist the external risks of African swine fever and thus stabilize pork prices. The importance of this point is much higher than the importance of "CPI excluding pork prices".
Let me give you another similar example. In July this year, the total retail sales of consumer goods was 3307.3 billion yuan, an increase of 7.6% year-on-year, and the growth rate fell by 2.2 percentage points from June. The main reason behind the decline in is the downturn in the automobile consumer market.
7 car sales fell 2.6%, showing a drop from positive growth of 17.2% to a 2.6% drop. After deducting the impact of automobile retail sales, the total retail sales of consumer goods in July increased by 8.8% year-on-year, basically the same as in June.
But this does not mean that cars need to be removed from the total retail sales of consumer goods, but rather, specific problems need to be analyzed in detail, the reasons for the sluggish automobile consumer market and the solution is found. This is the rational and objective attitude we should have.
So, even if the CPI has risen to 4.5%, we don’t need to be too anxious or panic. As long as the pork problem is effectively solved, the CPI will naturally drop.
However, in the short term, although pork prices have declined, their absolute value is still at a high level. As the temperature drops, New Year's Day and Spring Festival approach, the demand for meat products such as cured meat, sausages, etc. will increase. poses a major challenge to the current scale of live pig supply.
At present, pork prices may no longer have a rapid rise in the previous period, but the price reduction space is relatively limited, and it is likely that it will be a high probability event. Therefore, CPI may continue to exceed current market expectations in the short term.
11 CPI rose to 4.5% year-on-year, which makes us truly see again that rising prices are by no means a simple currency issue.
We have long told the people: rising prices = inflation , I think this is a wrong understanding. It is precisely because of this wrong perception that we blindly insist on "suppressing price increases through currency tightening."
Economic hot prices must rise, but rising prices may not necessarily be hot. Therefore, I believe that the change and unchanging of monetary policy should be based more on economic heat, rather than simply targeting prices.
If the economy is not hot or even cold, and prices rise - stagflation, should monetary policy be loose or tight? This requires specific analysis of the situation.
Inflation must be caused by strong demand and excessive currency issuance, but China currently does not have strong demand and no excessive currency issuance.
The current price increase is mainly due to the supply side, and the rise in pork prices is mainly affected by swine fever, environmental protection and other issues. Obviously, China's effective way to lower CPI now should be: will try every means to increase the supply of meat, rather than adopting a currency tightening approach.
Theoretically speaking, currency tightening will only further reduce the demand of the whole society, but it cannot suppress people's desire to eat meat. Therefore, suppressing "people eat meat" by using currency tightening is tantamount to "pigs get sick and people take medicine". It is not only meaningless, but will destroy domestic demand.
11 CPI rose to 4.5% year-on-year. The pork factor is definitely the main one. Others include seasonal and structural impacts of energy, so the impact is mainly on people's livelihood. is about New Year's Day and the Spring Festival, and people's livelihood issues must be considered.
But the supply of pork is difficult to increase rapidly. Now we should pay attention to the full supply of alternatives, such as beef, poultry and mutton. In addition, we should pay special attention to the protection of the lower-level and vulnerable groups in cities with difficulties in life.
At the same time, one point worth paying attention to in the CPI data is that rural areas have a larger increase in CPI than cities (cities rise 4.2% and rural areas rise 5.5%). This phenomenon is worth studying, but it is still difficult to give an accurate explanation now. However, if rural CPI continues to rise with lower income levels, it will definitely cause problems.
Overall, the social mentality of the CPI index is now very entangled. When it rises, it is worried about people's livelihood, it does not rise or fall, and it is also worried about economic vitality. This reflects that the Chinese economy is in a very delicate situation. I think this is more worth thinking about than the CPI index itself.
September 3.0%, October 3.8%, November 4.5%, CPI broke the 3% policy red line for three consecutive months. At present, pig prices will continue to rise in the first quarter of next year. The main reason is overdraft of the supply side, the peak autumn and winter seasons and Spring Festival effects on the demand side, coupled with the tail factor, it is expected that the CPI will still have upward action in the first quarter of next year.
The third quarter monetary policy report specifically mentioned the issue of inflation, believing that "there is no basis for sustained inflation or deflation."The core CPI excluding food and energy is only 1.4%, the lowest since March 2016. Although is not real inflation, it will hinder monetary policy.
As the downward pressure on the economy continues to increase, countercyclical adjustment is very necessary. Monetary policy will be moderately loose, but inflation expectations need to be managed well. Therefore, the next step of monetary easing can only be atypical easing, and it is difficult to see a large-scale relaxation of 2015.
This article is from Wu Xiaobo channel
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