article Caixin Research Institute macro team
Wu Chaoming Li Mo
Core viewpoint
What upward pressures are currently facing in domestic inflation, what impact will it have on the domestic inflation center, and how will the future inflation trend be interpreted? This article predicts and analyzes the domestic inflation situation from the third quarter of 2022 to the second quarter of 2023.
. What upward pressures are facing domestic inflation: high oil prices, food crisis, pig cycle start, demand recovery
. The probability of crude oil prices fluctuating in the high range is relatively high: First, From the demand side, under the combined influence of increasing energy demand in the cold winter weather and increasing crude oil substitution demand in the European natural gas crisis, crude oil demand rebounded in the fourth quarter, and then followed the global economic slowdown into a weak demand state; . From the supply side, due to the weak ability and willingness to increase production, OPEC, Russia and the United States, the crude oil production of the three major suppliers, has a lot of uncertainty, and the global crude oil supply will increase in the future.
. Food supply faces multiple challenges, and prices still have upward pressure: First, the impact of the Ukrainian war on grain production reduction will appear in concentrated areas from the second half of 2022 to the first half of 2023; Second, extreme weather such as high temperature drought will lead to crop yields lower than expected; Third, grain trade protectionism continues to heat up, and there may be local imbalances in global food supply and demand.
. The rising pig price trend will last at least until mid-2023, but the upward slope may be relatively flat under the mechanism of stabilizing pig prices: First, calculates the historical experience of the start of the pig cycle in April 2022 and the upward pig price increase for a period of 15 to 25 months. This round of pig price rise will last at least until mid-2023, and even throughout the entire 2023; Second, This round of pig cycle capacity sales show the characteristics of "small amplitude and short time", indicating that pork supply will still be at a high position in the future, and the rise rate of pig prices may slow down, and the duration may be extended; Third, national pig price stabilization regulation mechanism is conducive to slowing down the upward speed of pig prices.
. Demand recovery supports the upward space of core CPI: First, repeated domestic epidemics in the first half of 2022 caused the service industry to be most damaged, which means there is also a lot of room for subsequent repairs; . Second, is that when the profits of downstream in the middle and lower reaches of the early stage are squeezed, the transmission of PPI to CPI will become smooth and strengthen with the recovery of domestic demand.
2. Assessment of the impact of pigs, grains and oil on domestic inflation: pigs and grains will both pull CPI year-on-year; crude oil's pull on CPI and PPI year-on-year will tend to weaken. First, is expected to pull CPI up by about 0.6 percentage points year-on-year, an increase of 1.1 percentage points from the first half of 2022; second, is expected to increase the domestic CPI center by about 0.17 percentage points, higher than the average since 2014 by 0.13 percentage points; third, every 10% change in the international oil price of will cause upwards by 0.7 and 0.14 percentage points.
. Domestic inflation situation in the next year: the CPI center is likely to break 3%, and the PPI enters a negative growth range. First, is expected to increase significantly year-on-year in Q3-2023Q2, with the growth rate likely to break "3%" in many months, and the periodic highs were in September 2022 and February 2023. Under the benchmark scenario, the year-on-year center of 2022Q3-2023Q2CPI was around 3.2%, and the CPI in each quarter increased by about 2.8%, 2.9%, 4.0% and 3.0% year-on-year. second is expected that the year-on-year center of PPI in 2022Q3-2023Q2 will be around -0.5%, and the PPI in the four quarters will increase by about 2.4%, -1.3%, -1.0% and -2.1% year-on-year respectively. In terms of rhythm, it is likely to begin to enter a negative growth range in the fourth quarter of 2022.
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Overseas inflation remains high and the domestic pig cycle upward have caused market concerns about domestic inflation, but recently the price of commodity weakened due to global recession expectations, and domestic inflation expectations have diverged. What upward pressures are facing domestic inflation at present, what impact the above factors have on the domestic inflation center, and how domestic inflation will be interpreted in the future, this article analyzes and answers the above questions.
1. What upward pressures are facing at present domestic inflation
(I) Input inflation pressure: oil prices are high + food crisis
In the case of the epidemic crisis and the conflict between Russia and Ukraine successively impacting commodity supply, the prices of commodities represented by crude oil and grain have risen sharply, becoming the main contributor to high inflation overseas. For example, according to the June Economic Outlook Report of the OECD, the average pulling effect of food and energy on CPI in major economies in April was about 4.7%, and the median contribution rate of CPI to major economies was 54.7% (see Figure 1), that is, more than half of the CPI increase comes from rising food and energy prices. The price increase of commodities will also bring pressure on imported inflation to the country. Therefore, it is necessary to analyze the trends of the two major sources of imported inflation, oil prices and grain.
. Oil price: crude oil demand has grown weakly, but supply increases are limited. The probability of oscillation in the high range in the future is relatively high
International oil prices are affected by a comprehensive impact of various factors such as supply and demand relationship, strength of the USD index, and geopolitical relations. However, since its basic attribute is a commodity, price changes will ultimately mainly depend on the fundamentals of supply and demand. It is expected that crude oil demand will likely show a pattern of weak growth in the future, but limited supply increases. Under the rebalancing of supply and demand, it is difficult for crude oil prices to drop significantly, and it is likely to fluctuate in the high range, and the domestic imported inflation pressure will continue to exist.
From the demand side, crude oil demand is expected to rebound a lot in the fourth quarter, and then as the global economy slows down, it enters a weak demand state. On the one hand, crude oil demand and global economic growth rate have changed simultaneously (see Figure 2). Faced with high inflation and interest rate hikes, the global economy is inevitable, but the probability of falling into recession in the short term is not high. For example, the forecast values of the world bank , OECD, and IMF for global economic growth in 2022 and 2023 are between 2.8-3.2%. The global economic growth rate will continue to maintain positive growth in the short term, so crude oil demand will continue to grow weakly in the future. On the other hand, the repeated impact of the epidemic on transportation and logistics continues, such as the global number of commercial flights still has a large gap between the number of commercial flights before the epidemic (see Figure 3), resulting in the recovery of aviation kerosene demand in major economies is less than 80% of the 2019 level (see Figure 4). It is expected that as the economy's adaptability to the epidemic increases, the global supply chain will gradually become smooth, and the above-mentioned aviation kerosene demand will be further released, forming a certain support for crude oil demand. In addition, according to the forecast of National Oceanic and Atmospheric Administration (NOAA), the probability of La Niña phenomenon in winter in 2022 is about 80% (see Figure 5), which means that weather phenomena such as cold waves may increase significantly this winter. Under the combined influence of factors such as increasing energy demand in the cold winter and increasing crude oil replacement demand for factors such as the European natural gas crisis, energy demand is expected to be significantly boosted in the fourth quarter. Overall, crude oil demand is expected to rebound a lot in the fourth quarter, and then enter a weak demand state as the global economy slows down.
From the supply side, the most severely impacted stage has passed, but all the three major suppliers have great uncertainty. According to EIA data, OPEC, the United States and Russia's crude oil production accounted for 33.9%, 20.3% and 11.0% of the world in June, respectively, with a total proportion of up to 64.6% (see Figure 6), which is the main decisive force in global crude oil supply. Below we analyze the crude oil production situation of the three major suppliers one by one.
Supplier OPEC: The ability and willingness to increase production are not strong, and the probability of increasing production is lower than expected. OPEC+ includes the Organization of Petroleum Exporting Countries (OPEC) and other oil-producing countries such as Russia. The organization decided to gradually increase production from August 2021 until it recovers or exceeds the active production cuts during the epidemic. According to the production increase plan announced by the 19th meeting of OPEC+, the 10 OPEC countries participating in the production increase ( Iran , Venezuela and Libya three member states) that are not subject to quota constraints) have undertaken about 64.7% of the production increase task. Among them, the share of production increase in Saudi Arabia , Iraq, the UAE, and Kuwait is a major force in OPEC's production increase (see Figure 7).Judging from the actual situation, due to insufficient production capacity in some countries, OPEC10's monthly actual crude oil output continues to be lower than the planned quota (see Figure 8). It is expected that in the context of insufficient capital expenditure in the early stage, the probability of completing planned output in the future is also relatively low. Judging from the willingness to increase production, OPEC countries have a strong willingness to maintain high oil prices. On the one hand, in the context of slow increase in production of shale oil in the United States and sanctions faced by Russia's crude oil exports, the motivation for OPEC countries to increase production and lower prices to seize market share is weak; on the other hand, from 2014 to 2021, the oil prices of major countries such as Saudi Arabia and the UAE (the oil price when oil-producing countries achieve fiscal revenue and expenditure, which is used to measure the cost of crude oil in various countries) continue to be higher than international oil prices (see Figure 9). Governments of various countries are in a loss state for a long time. In order to fill the previous losses and reduce debt pressure, governments of various countries have weak willingness to increase production and suppress oil prices.
Supplier Russia: European and American sanctions continue to impact crude oil supply. Since the outbreak of the Russian-Ukraine War in February 2022, developed economies such as Europe and the United States have continued to impose sanctions on Russian crude oil and energy exports, which is the main driving force for the sharp rise in international oil prices this year (see Figure 10-11). Specific measures include directly banning or reducing imports from Russia, banning transportation, and setting price ceilings. Affected by this, Russia's crude oil production continues to be lower than the planned quota. However, Russia's crude oil production has rebounded since May, mainly because some of Russia's crude oil exports to China and India, offsetting the decline in Europe and the United States and other countries (see Figure 12). According to the content of the sixth sanctions of the EU of and Russia's existing trade transfer response methods, the future Russian crude oil exports mainly depend on whether Asian countries can continue to expand imports of crude oil from Russia. It is expected that under the background of the sanctions of Europe and the United States from embargo to price limits, Russian crude oil will be shipped to Europe more through trade transfer. However, since the crude oil market is seller market (the impact of European and American price limit measures is limited), and other methods have significantly increased the transportation and time costs, the rebalancing price of the crude oil market may be significantly higher than before the war, and the game between Russia and Europe and the United States will continue to disturb the supply and demand imbalance in the crude oil market, and the risk of further upward oil prices still exists.
Supplier United States: weak willingness and ability to expand production. Because the production of shale oil wells in the United States decays rapidly, U.S. crude oil production usually fluctuates with the number of oil wells completed. However, judging from the structure of the completed wells in the United States after the epidemic, the willingness to expand crude oil production is weak. For example, from 2020 to 2021, the U.S. crude oil production relies more on the release of unfinished drilling inventory. The number of new drilling is far lower than in previous years. At the end of June, the number of new drilling was 938, which is still 14% away from before the epidemic. During the same period, the number of unfinished drilling inventory has dropped to 4,245, less than half of the previous epidemic (see Figure 13), indicating that the U.S. oil companies are weaker in their willingness to increase capital expenditure to conduct new drilling activities and are more willing to consume early inventory to increase production. Judging from the capital expenditure of US oil companies, the ability to increase production is relatively weak. For example, since 2016, the capital support of oil and natural gas mining companies has continued to be sluggish, with an average of only about half of that in 2010-2015 (see Figure 14), which has restricted the ability of enterprises to increase production. Overall, high oil prices will drive American oil and gas companies to resume production, but they are not willing and capable of significantly increasing production.
. Food: Supply faces multiple challenges, and prices still have upward pressure
Under the combined influence of the Russian-Ukrainian conflict, extreme weather, epidemic crisis and trade restrictions, global food security currently faces multiple challenges. Although grain prices have fallen recently, the above three factors continue to impact the grain supply, and it is expected that grain prices will still have upward pressure in the future.
First, the impact of the Ukrainian war on grain production reduction will appear in the second half of this year and the first half of next year. From the perspective of grain production, Ukrainian crops are concentrated in sowing from March to May and harvested from July to October (see Figure 15).The Russian-Ukrainian conflict broke out in Ukraine at the end of February directly led to a significant decline in Ukraine's grain sowing area. For example, according to APK-Inform's April forecast data, the winter cereal harvest area and spring cereal sowing area in Ukraine in 2022 were significantly lower than the same period in history (see Figure 16). It is expected that the impact of Ukrainian grain production cuts will be concentrated in the harvest season from July to October. From the perspective of grain exports, on July 22, the United Nations , Turkey , Russia and Ukraine reached an agreement to reopen the Black Sea grain channel, which will help alleviate the sharp decline in Ukrainian grain exports (see Figure 17). However, due to the tense situation in Russia and Ukraine, the subsequent implementation of the agreement remains variable. It is expected that Ukraine's grain exports will rebound in the future. However, given the impact of high uncertainty in transportation channels and the decline in Ukraine's grain output, Ukraine's exports will continue to be lower than the historical level in the same period in the future.
Second, extreme weather such as high temperature and drought will cause crop yields to be lower than expected. html Since June, the world has encountered protracted high temperature and drought weather, with extreme weather sweeping across Europe, Asia, America and other regions. According to the National Oceanic and Atmospheric Administration report, July 2022 is the sixth hottest period since a global record in 1880, while high temperatures and droughts will continue in August (see Figure 18). Since June and August are the key growth period for spring sowing crops, according to the US Department of Agriculture’s global crop planting calendar, corn, rice and other crops in the United States, Europe, China and other crops are all in the critical period of crop growth - the flowering period (see Figure 19). Extreme weather will inevitably have a certain impact on their growth, resulting in the production of major grains lower than expected. Even if modern agricultural technology can reduce the impact of high temperature and drought on yield to a certain extent, the resulting upward migration of planting costs will also raise the center of grain price.
Third, food trade protectionism continues to heat up, and there may be local imbalance in global food supply and demand. Since the arable land area and population volume of each country are not completely matched, the global food supply and demand balance is highly dependent on exports. For example, the global export volume of wheat, corn and rice in 2021 accounted for 26%, 16.4% and 10.6% of the output respectively (see Figure 20). However, in the context of escalating geopolitical events such as the Russian-Ukrainian conflict, concerns about food security have significantly intensified, and more and more countries have issued export bans to ensure their own food supply. For example, according to IFPRI data, the number of countries that implemented food export bans in 2022 significantly exceeded the level during the COVID-19 epidemic and was close to the level during the 2008 food crisis (see Figure 21). It is expected that under the circumstances of anti-globalization and frequent extreme weather, the implementation of grain export restrictions in various countries may become the norm in the future. The reduction in grain exports will lead to a change in the global grain supply and demand balance pattern, which will provide certain upward support for grain prices.
(II) Domestic inflation pressure: pig cycle starts + demand recovery
. Pig cycle: It is expected that the upward market will continue until at least mid-2023, but the upward slope may be relatively flat
. First, a new round of pig cycle has been opened. First, the stock of breeding sows is leading the pork price by about 12 months year-on-year. The year-on-year growth rate of breeding sows has fallen from a high range of more than 30% since June 2021, which means that the new pig cycle is likely to start in June 2022 (see Figure 22); second, the starting point of the previous pig cycle is May 2018. Based on the duration of the first three pig cycles for about 4 years, the end point of the pig cycle is likely to be in the middle of this year (see Figure 23). Combined with the continued rise in pig prices since April, it can basically be determined that the new pig cycle has started.
Second, it is expected that the price increase of pigs will continue until at least mid-2023, but the increase rate is likely to slow down. First, in the first four pig cycles, the pig price has been rising for 15 to 25 months. If estimated according to the start of the pig cycle in April, the pig price rise in this round will last at least until mid-2023, and even throughout 2023 (see Figure 23). Secondly, This round of pig cycle capacity sales showed the characteristics of "small amplitude and short time", indicating that pork supply will remain at a relatively high position in the future, and the subsequent increase in pig price may slow down, and the duration may be extended.If we use the stock of breeding sows as a portrayal indicator for pig production capacity, this round of pig production capacity has dropped from 45.64 million in June 2021 to 41.77 million in April 2022, with a decrease of about 8.5% during the period, lasting 9 months, significantly lower than the total decline of 20-50% of the pig cycle in 2014 and 2018 and the sales cycle of about two years (see Figure 24). This shows that the current pork production capacity is not sufficient, and subsequent pork price increases are highly restricted. In addition, in the future, pork production capacity may continue to be sold after short-term replenishment, and the pork rise cycle may be extended. Third, is the mechanism for stabilizing pig prices to stabilize the increase in pig prices. Compared with previous cycles, this round of pig price stabilization mechanism is more specific and clear. For example, the "Plan for Improving the Government's Pork Reserve Regulation Mechanism to Make a Good Work in the Pork Market Supply and Price Stabilization" issued in 2021 has made clear provisions on the standards for pork reserve collection, storage and delivery. When the pig grain is higher than 10:1 than , pork reserve release will be initiated (see Figure 25). If calculated based on the current corn price of 2.9 yuan/kg, when the pig price exceeds 29 yuan/kg, the government's intervention will be significantly increased, that is, after the subsequent pig price increase exceeds 30% (the current average pig price in 22 provinces and cities is about 22 yuan/kg), the upward speed will be suppressed by policies.
, core CPI: demand recovery supports price transmission and upward space
Due to the frequent occurrence of domestic epidemics, the recovery of domestic service industry was once again severely impacted in the first half of the year. For example, from January to June, the growth rate of added value of the tertiary industry was lower than the overall, among which the growth rate of added value of the real estate industry, accommodation and catering, transportation and other industries was negative, and the growth rate of added value of other service industries except the financial industry was also lower than the average growth rate of the two-year growth rate in 2021 (see Figure 26). It is expected that with the overall improvement of the domestic epidemic situation and the recovery of market expectations, the upward recovery of the service industry in the future is a high probability event, which will support the price of the service industry, especially the price of the contact service industry, but the restoration space is still restricted by the repeated restrictions of the epidemic. In addition, when the middle and downstream profits are squeezed by multiple times in the early stage and the recovery of domestic demand, it is expected that some cost pressure will be transferred to the terminal consumption level in the future, and the transmission effect of PPI to CPI will also be enhanced (see Figure 27).
2. The impact of pigs, grains and oil on domestic inflation
(I) It is expected that pork in 2022Q3-2023Q2 will drive the CPI to rise by about 0.6 percentage points year-on-year, an increase of 1.1 percentage points from the first half of 2022
According to the previous analysis of this round of pig cycle and the actual situation of the average price of live pigs in 22 provinces and cities in July 2022, we make three scenarios. Assume: 1) The benchmark scenario, the average pig price of 22 provinces and cities rose to 30 yuan/kg at the end of 2023; 2) The optimistic scenario (the rising price of pigs is slow), assuming that this round of pork rise lasts for about 25 months, the average pig price of 22 provinces and cities will rise at a rate of 0.38 yuan/kg/month in the future, and will rise to about 27 yuan/kg at the end of 2023; 3) The pessimistic scenario (the rising price of pigs is faster), the average pig price of 22 provinces and cities rose to 30 yuan/kg in mid-2023, but the subsequent increase rate is halved, and the average price at the end of 2023 will rise to about 32.5 yuan/kg.
According to the CPI pork pull and CPI pork year-on-year growth rate announced by the Bureau of Statistics, we can reversely launch the monthly CPI pork year-on-year weight. The calculation results show that the CPI pork year-on-year weight has dropped from 2.3% in January to 1.3% in July, with a fluctuation within the year as high as 42%. In order to more accurately evaluate the impact of rising pork prices on CPI, it is necessary to re-estimate the year-on-year weight of CPI pork.
Domestic CPI is compiled using the internationally popular chain Larch formula, that is,
CPI fixed-base index = ∑current price × base period quantity/∑base period price × base period quantity
According to the above formula, when the fixed-base index is converted to year-on-year or month-on-month growth rate, the weight of specific goods and services will change. Taking pork as an example, when calculating the year-on-year pull of pork to CPI, the weight is the proportion of pork consumption calculated by the price in the same period of the previous year to the amount of CPI basket; when calculating the month-on-month pull of pork to CPI, the weight is the proportion of pork consumption calculated by the price in the previous period to the amount of CPI basket.
Therefore, pork price trends are usually ahead of CPI pork’s year-on-year weight for about one year. The year-on-year weight of CPI pork should be equal to the month-on-month weight of 11 months ago. Historical data also verifies the above views (see Figure 28-29).However, since the month-on-month index released by the Bureau of Statistics is greatly affected by rounding, and 2021 is the first year of the base period rotation, the pork price, month-on-month weight and CPI year-on-year weight are not exactly one-to-one. According to the trends of the above two indicators, it is expected that the year-on-year weight of CPI will run at a low level before June 2023, with the center around 1.3%, and the year-on-year weight of pork will then rebound. According to the above-mentioned pig price assumption, it will probably rebound to the central level of 2.0%.
We estimate the future year-on-year effect of pork on CPI based on the above pork price scenario assumptions and CPI pork weights. The calculation results show that under the benchmark scenario, pork will drive the CPI to rise by about 0.6 percentage points year-on-year in the next year (third quarter of 2022-second quarter of 2023, the same below), an increase of 1.1 percentage points from the first half of this year. The average pulling effect of each quarter is about 0.4%, 0.6%, 0.8%, and 0.7%, respectively. There may be two phased highs around October 2022 and the end of the first quarter of 2023 (see Figure 30).
(II) It is expected that the rise in grain prices will drive the domestic CPI up by about 0.17 percentage points, an increase of about 0.13 percentage points from the historical average level
Domestic grain prices are less directly affected by international prices. First, my country's grain inventory level is high, providing sufficient guarantee for domestic grain supply. For example, in 2021, the ratio of inventory sales of wheat, rice and corn in my country (inventory/consumption at the end of the year) was 103.2%, 75.9% and 47.9% respectively (see Figure 31), that is, the inventory level at the end of 2021 can meet the domestic consumption demand for 12 months, 9 months and 6 months respectively, which is significantly higher than the internationally recognized 17%~18% food security line. Second, domestic grain imports adopt quota management to build a firewall for domestic grain prices. my country implements an import tariff quota management system for the three major staple foods, 1% tariff is imposed within the quota, and an additional 65% tariff is imposed. The import quotas for wheat, corn and rice in 2021 were 9.636 million tons, 7.2 million tons and 5.32 million tons, respectively, accounting for 6.5%, 2.5% and 3.4% of the consumption in 2021 (see Figure 32). The value of the import quota can effectively isolate the domestic and foreign supply and demand markets, making domestic grain prices less affected by the international international market.
Therefore, the imported inflation pressure of grain rise on domestic prices mainly affects domestic CPI through trade and cost channels. The following is an analysis and estimate of the impact of the two channels.
cost channel drives CPI to rise by 0.14 percentage points. Based on the three major grain planting costs composition in my country (see Figure 33) and the year-on-year increase of domestic fertilizers and refined oil, we first estimate the pulling effect of the rise in fertilizers and refined oil on grain planting costs, and then excluding the offsetting effect of the 40 billion agricultural subsidy allocated by the central government on planting costs. Under the benchmark assumption of the synchronous fluctuation of grain prices and costs, we estimate that the pulling effect of the cost channel on CPI is about 0.14 percentage points (see Figure 35).
trade channel drives CPI up 0.03 percentage points. First, based on the consumption of wheat, corn, rice and soybeans in 2021, the proportion of each variety in CPI grain was estimated (see Figure 34), and then based on the proportion of each variety in 2021 and the year-on-year increase from January to August of the same year, it is estimated that the import and export channels will drive the CPI growth rate by about 0.03 percentage points (the rice import price fell year-on-year from January to August 2021, so only the other three varieties have been estimated to drive the CPI).
The impact of comprehensive costs and trade channels, the input pressure of the global food crisis on domestic CPI is around 0.17 percentage points, an increase of about 0.13 percentage points from the average level since 2014 (see Figure 35).
(III) Every 10% change in international oil prices will cause up and down fluctuations of 0.7 and 0.14 percentage points for the center of PPI and CPI
As the mother of commodities, crude oil price fluctuations will have a certain impact on both PPI and CPI. We use the input-output method and linear regression method to evaluate the impact of oil price fluctuations respectively.
International oil prices rose by 10%, which will drive PPI up by 0.7 percentage points. Due to the long crude oil industry chain, we estimate the role of international oil prices in boosting domestic PPI from the perspective of input-output table .First, based on the input-output table in 2018, the complete consumption coefficient of the oil and gas mining industry of 153 departments was calculated, and the proportion of output from each industrial sector to the output of all industrial sectors was used as the weight to calculate the boosting effect of oil prices on industrial sector prices (PPI) (assuming that prices are fully transmitted). Calculation results show that international oil prices rose by 1%, which will drive the PPI center to rise by 0.07 percentage points. It should be noted that the input-output method estimates the impact of rising oil prices on industrial product prices from the perspective of cost-driven, and does not consider the problems of conduction delays and poor conduction of upstream and downstream prices, so the impact may be overestimated.
International oil prices rose by 10%, which will push up CPI by 0.14 percentage points year-on-year. Theoretically, there are two major chains for international oil prices to CPI: One is the direct transmission of international oil prices to domestic refined oil prices, and is mainly reflected in the fuel for transportation vehicles in the transportation communication sub-item and the prices of water and electricity fuel in the residential sub-item. We estimate through simple regression separately. When WTI crude oil rises by 1%, the fuel for transportation and hydropower fuel will increase by 0.24% and 0.02% respectively; combined with us using regression equation to estimate the weight of the two in CPI, we obtain the conclusion that the oil price rises by 10%, which will directly drive the CPI center to rise by 0.07 percentage points, and the overall impact is relatively limited. The second is the transmission chain of "International oil prices → PPI means of production → PPI non-food living materials → CPI industrial consumer goods". There are many intermediate links in this conduction chain, and its effect depends on whether all links can be fully transmitted during downstream requirements. We first estimate the year-on-year growth rate of CPI industrial consumer goods and found that there is a clear positive correlation between the year-on-year CPI industrial consumer goods and the year-on-year PPI. The regression results also show that the 10% increase in PPI will drive the CPI industrial consumer goods to rise by 0.24 percentage points, and multiply it by the conduction coefficient of international oil prices to PPI. The conduction coefficient of the rise in international oil prices to the price of CPI industrial consumer goods is around 0.017. Since the weight of CPI industrial consumer goods is around 40.9% (estimated by the regression model), oil prices rose by 10%, and the second chain will push CPI up by about 0.07 percentage points. Combined with the two major chains, the rise of international oil prices by 10%, which will push CPI by 0.14 percentage points year-on-year.
Considering the high uncertainty on the supply side of oil prices, we make three assumptions on the international oil price trend based on the EIA prediction results. Under the benchmark situation (EIA forecast), high oil price scenario, and low oil price scenario, the WTI oil price centers in the next year (third quarter of 2022-second quarter of 2023) will be US$93/barrel, US$100/barrel and US$84/barrel respectively. However, as the base continues to rise, the year-on-year growth rate of oil prices will show a downward trend in the next year, and the probability of entering year-on-year negative growth in 2023 is relatively high. Based on the above calculations, we predict that the year-on-year pull of crude oil on CPI in the third quarter of 2022 to the second quarter of 2023 will be 0.6, 0.3, 0 and -0.2 percentage points respectively, and the year-on-year pull of PPI will be 2.8, 1.4, -0.2 and -1.2 percentage points respectively, and the year-on-year pull of oil prices on CPI and PPI will be weakened overall. However, due to the high uncertainty of the oil price trend, oil prices will still be the key factor affecting domestic inflation in the future. Under the scenarios of high oil prices and low oil prices, the year-on-year pull of oil prices by oil prices in the future will fluctuate by about 0.1 percentage points and 0.7 percentage points.
3. Domestic inflation situation
(I) It is estimated that the year-on-year center of CPI is more than 3.0%
Combined with the previous analysis of key factors, we split the CPI into four parts for prediction: pork, the food items that eliminate pork, energy, energy and the core CPI of food, respectively calculate the pulling effect of each part on CPI year-on-year, and then summarize and predict the year-on-year growth rate of CPI. The forecast results show that the CPI year-on-year center will rise significantly in the next year, with the growth rate likely to break "3%" in many months, with September 2022 and February 2023 being phased highs. Under the benchmark scenario, the CPI year-on-year center will be around 3.2% in the next year, and the CPI in each quarter will increase by about 2.8%, 2.9%, 4.0% and 3.0% year-on-year (see Figure 36).
(II) It is expected that the year-on-year PPI center will enter the negative growth range
Crude oil, coal, rebar , copper and other commodities prices change are key variables that affect the domestic PPI trend.We used the year-on-year growth rate of crude oil prices, the year-on-year growth rate of thermal coal prices, the year-on-year growth rate of rebar prices, and the year-on-year growth rate of cathode copper prices as explanatory variables to fit the year-on-year growth rate of PPI. The regression equation fits R^2 to 0.78, indicating that the above commodity prices can explain the fluctuations of PPI year-on-year growth rate of 78%, and have strong explanatory ability. Assuming that the prices of commodities such as coal, rebar, cathode copper are equal to the commodity futures price delivered in the corresponding month in the next year, and the crude oil price is based on the EIA prediction value. We estimate that under the benchmark situation, the year-on-year PPI will be around -0.5%, and the year-on-year PPI will increase by about 2.4%, -1.3%, -1.0%, and -2.1% respectively in the four quarters. In terms of rhythm, it is likely to enter a negative growth range in the fourth quarter of 2022 (see Figure 37).
This article comes from the financial world
