Event: On June 10, 2022, the Bureau of Statistics released May inflation data. Data shows that CPI rose 2.1% year-on-year in May, with an expected increase of 2.2%, and the previous value rose 2.1%. PPI rose 6.4% year-on-year, with an expected increase of 6.4% and an previous value of 8%.
CPI rose less than expected, and input inflation coexisted with structural inflation
5 CPI rose 2.1%, the same as the previous value and 2.2% lower than the market expectations.
From a year-on-year perspective, food, tobacco, alcohol, daily necessities and services increased year-on-year, while transportation, communications, education, culture, entertainment and residential sub-items increased year-on-year, and CPI decreased. To look more detailed, the price increase factor is mainly reflected in the year-on-year contribution of pork and fresh fruit, which is related to the gradual emergence of the reduction effect of pig production capacity and the narrowing of the year-on-year decline in pork prices. At the same time, aquatic products, fresh vegetables and eggs have dropped significantly year-on-year, which reflects the gradual opening of logistics and supply chains for daily necessities, which echoes the logic of the rebound of export data beyond expectations. In addition, travel, residence, education, culture and entertainment have driven the decline in CPI. This is actually a comprehensive reflection of short-term factors such as restricted abortion activities during the epidemic, limited demand for offline related services, and long-term factors such as impact on residents' income and consumption intentions since the epidemic.
From the perspective of month-on-month , CPI turned from rising to falling month-on-month, core CPI rose month-on-month, and May is still during the epidemic period, and domestic demand has not been released significantly. Entering June, the epidemic has gradually stabilized, and domestic demand may accelerate. The trend of CPI gradually recovering year-on-year during the year is relatively certain, and the subsequent epidemic factors have gradually calmed down, focusing on the pull of CPI by pork and energy chains.
From the current inflation characteristics, it mainly continues the coexistence of structural inflation and imported inflation. Structural inflation is mainly reflected in pork, fresh vegetables and fruits in food items. On the one hand, the decline in pork prices has narrowed, and the increase in CPI by the pig cycle may gradually appear. In addition, after the epidemic gradually stabilizes, the demand for home-based materials may gradually stabilize, and pay attention to the driving effect of the seasonal rise in fresh fruits and the seasonal decline in fresh vegetables on CPI year-on-year. Input-based inflation is reflected in the energy chain and food. The energy chain and the US CPI energy sub-item are basically the same year-on-year. Although US inflation peaked year-on-year, inflation pressure is still at a high level, and the transmission of energy chain and food to domestic inflation is still continuing.
Figure 1: The year-on-year increase in CPI in May is mainly due to the pull of food, tobacco, alcohol and life services
Source: iFinD Nanhua Research
Figure 2: The moderate upward trend of CPI remains unchanged this year
Source: iFinD Nanhua Research
Figure 3: The seasonal characteristics of fresh fruit CPI year-on-year, pay attention to the driving force of seasonal rise in fresh fruits on CPI
Source: Choice Nanhua Research
Figure 4: After the epidemic is stable, fresh vegetables CPI may show a seasonal decline
Source: Choice Nanhua Research
PPI continued to decline year-on-year
5 PPI rose 6.4% year-on-year, the same as expected, and fell 1.6% from the previous value, and the downward trend continued under the high cardinality effect .
From a year-on-year perspective, the year-on-year decline in PPI is mainly due to the decline in the prices of means of production, and both the upstream, middle and downstream have declined to varying degrees, especially the decline in the middle and lower reaches of the processing industry. From the perspective of sub-industry, it is mainly reflected in the year-on-year decline in black, nonferrous metals, coal processing industries and coal mining. This may be related to the weak real estate market in May, the poor automobile industry chain and the slowdown in investment growth, and is consistent with the trend of the PMI price index in the manufacturing industry. At the same time, the electronic equipment manufacturing industries such as computers and general equipment manufacturing industries that have made positive contributions to PPI year-on-year are related to the gradual recovery of high-end manufacturing production capacity in May, and the month-on-month performance also confirms this logic. In addition, the PPI of living materials increased year-on-year, especially the food and clothing sub-items. The conflict between Russia and Ukraine and the domestic epidemic have both positively raised the food items, but as the epidemic stabilizes and the economic recovery follows, the food items are expected to be mainly reflected in the impact of pork prices.
Figure 5: Changes in the same month-on-month period of PPI in May (unit: %)
Source: iFinD Nanhua Research
Figure 6: Changes in the same month-on-month period of PPI in industries
Source: iFinD Nanhua Research
According to the statistics Bureau, among the 6.4% year-on-year increase in May, the impact of the price changes in the last year was about 4.1 percentage points, and the impact of the new price increase was about 2.3 percentage points. It can be seen that the tail factor has a great impact on the PPI year-on-year, and it may accelerate to drag down the PPI year-on-year in the third quarter.
The next stage of inflation situation outlook
5 months' inflation data, in addition to the impact of Russia, Ukraine and domestic epidemics, the accelerated narrowing of pork declines on the CPI has gradually attracted the attention of the market. In the future, the inflation transmission pressure under the influence of Russia and Ukraine is still there, but the recovery of domestic demand may be more worthy of attention after the epidemic gradually stabilizes. But overall, considering that consumption always lags behind investment and exports during the economic recovery, residents' income and consumption willingness are relatively slow to recover after being hit by continuous impact, it is expected that the overall CPI will still show a moderate upward trend this year.
For PPI, considering the high base effect, the trend of PPI continuing to decline will not change this year. Although the mid-to-upstream PPI continued to decline under the same supply and price stability year-on-year, it is in a high position overall. The profit improvement of mid-to-downstream enterprises still requires further reduction in upstream costs and a significant improvement in terminal demand. Perhaps it is expected to see the acceleration of this trend in the second half of the year.
This article is from Nanhua Futures
