Non-food support CPI rebounded, domestic demand recovery is still weak
Comments on CPI and PPI data in April 2024
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Macro team of Wen Caixin Research Institute
Wu Chaoming and Li Mo
Core viewpoints
First, non-food is the main reason for the rebound in CPI growth. In terms of food, the month-on-month decline in prices narrowed to-1%, which is in line with the historical average over the same period, and the downward effect of food on CPI was basically the same as last month. In terms of non-food, Qingming Festival short holiday pushed service prices back to the historical level of the same period, coupled with the rebound in international commodity prices such as gold and crude oil to support the prices of related consumer goods, and the pull-up effect of non-food on CPI increased by 0.Freepokernodeposit.2 percentage points, contributing to the total year-on-year increase in CPI. However, the core CPI is still in the "0" era, and the recovery of domestic demand is still slow.
Second, it is expected that CPI will grow by about 0.2% in May, and the central government will moderately pick up to about 0.2% in the second quarter. The month-on-month decline in food prices is expected to narrow in May; second, pork prices are expected to pick up moderately year-on-year due to the low base in the same period last year; third, the recovery of the domestic economy and moderate repair of service demand will support non-food prices to a certain extent; fourth, it is expected that the low base of oil prices will still support non-food year-on-year; and fifth, the tail-warping factor of CPI increased by 0.2% in May.
Third, the low base supports the narrowing of the decline in PPI, but the recovery of domestic demand is weak. Affected by the significant weakening of the tail-warping factor, the year-on-year decline in PPI narrowed in April, but the month-on-month decline in PPI expanded, and the contradiction between weak domestic demand recovery and adequate supply further highlighted. From a sub-industry point of view, the prices of crude oil chain and black chain rise and fall, and the import pressure increases, but the clampdown of domestic real estate downturn on the rebound in prices can not be ignored.
Fourth, it is expected that the rate of decline in PPI in May will narrow to-1.6%, which may gradually narrow during the year, but there is a high probability that negative growth will continue for the whole year. First, the tail-warping factor of PPI in May is 0.9% higher than that in April; second, due to the expectation of the Federal Reserve to cut interest rates and the greater uncertainty of the geopolitical situation, the probability of high crude oil prices in May is on the high side; third, the policy will support domestic industrial product prices in the short term, but the rebound power is restricted by the real estate downturn. It is expected that under the joint support of the low base effect and the rebound in demand, the decline in PPI will continue to narrow during the year, but it will take time for the vivid energy to return, and there is a high probability that negative growth will continue for the whole year.
Summary: international input pressure, moderate domestic economic recovery and low base have jointly supported the slight rebound in CPI and PPI growth in April compared with the same period last year, but the domestic economic recovery is still slow, and the price clampdown effect of economic weak links is highlighted. Looking back, it is expected that the policy ahead will lead to a moderate recovery of domestic demand, but the deconstruction pressure of domestic supply is still high, and the recovery probability of the inflation center is moderate, and it is difficult to change the pattern of low inflation this year.
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What happened: in April, the national consumer price index (CPI) rose 0.1% month-on-month, 0.3% year-on-year, 0.2% higher than the previous month; industrial producer price index (PPI) fell 0.2% month-on-month, 2.5% year-on-year, 0.3% lower than the previous month.
First, non-food is the main reason for the rebound in CPI growth. CPI is expected to grow by about 0.2% in May and will pick up moderately this year.
The decline in food prices is comparable to that of the same period in history, with little impact on CPI. In terms of food, the month-on-month decline in food prices narrowed 2.2 percentage points to-1.0% in April, basically the same as the historical average for the same period in 2013-2023, the year-on-year decline was the same as the previous month's-2.7%, and the impact on CPI fell by about 0.49%, basically the same as the previous month (see figure 1). Among them, pork prices changed from 6.7 per cent month-on-month to flat last month, from 2.4 per cent down to 1.4 per cent higher than the same period last year, and the pulling effect on CPI increased by 0.05 percentage points compared with the previous month. Fresh vegetable prices narrowed 7.3% month-on-month decline to 3.7%, up 1.3% from 1.3% year-on-year, and the pulling effect on CPI increased by 0.06% compared with the previous month.FreepokernodepositThe month-on-month growth rate of most of his major food prices also fell, but the decline was up and down compared with the previous month, and was basically seasonal, with relatively little impact on CPI year-on-year (see figure 2-3).
The recovery of service demand and input factors together push up non-food prices. Non-food prices rose 0.9% year-on-year in April, up 0.2% from the previous month (see figure 4). The pull-up effect on CPI increased by 0.2% year-on-year, which is the main support for the moderate recovery of CPI this month. From an itemized perspective, the recovery of demand for services and the rise in international commodity prices are not the main reasons for the rebound in food prices. First, under the influence of Qingming Festival short holiday, service prices returned to the historical average in April, and the pull-up effect of service prices on non-food remained stable. For example, service prices rose 0.3% month-on-month in April from 1.1% to 0.3%, the same growth rate as the average in 2011-19 (see figure 5). Second, due to the upward impact of international gold prices and oil prices, other supplies and services and fuel for transport increased by 2.0% and 2.9% respectively in April, with a corresponding increase over the same period last year, strengthening the supporting role of non-food.
Core CPI continues to be in the "0" era, and a moderate recovery is expected in the future. Core CPI, which excludes food and energy, rose 0.7% in April from a year earlier, up 0.1% from the previous month, and continues to be in the "zero" era. Among them, service prices were unchanged from the same period last month, and the price increase of industrial consumer goods excluding energy increased by 0.3 percentage points to 0.4%, which was the main support. Looking back, there is still plenty of room for the recovery of service demand, and the moderate recovery of domestic demand is also expected to be transmitted to the price end, and the stabilization and rebound of core CPI in the future is a high probability event, but the smooth circulation of residents'"employment-income-consumption" still faces obstacles, and the slope of core CPI rebound is expected to be slow in the future.
CPI is expected to grow by about 0.2 per cent year-on-year in May 2024. First, it is expected that the month-on-month decline in food prices narrowed in May. According to data from the Ministry of Agriculture, as of May 10, the prices of 28 key monitoring vegetables, 7 key monitoring fruits, and pork had increased by 0.4%,-0.8%, and-0.4%, respectively, from a sharp decline in fresh vegetable prices to a slight increase in pork prices. Fruit prices have maintained a slight downward trend, so it is expected that the monthly decline in food in May will be narrowed. Second, pork prices are expected to remain weak in the short term, but the base is flat and low in the second quarter of last year, which is conducive to the rise of pork prices in May; third, the recovery of the domestic economy and the mild repair of service demand will form a certain support for non-food prices; fourth, although the international oil price is high, the low base is strong, and it is expected that the oil price will still play a strong supporting role to non-food prices in May. Fifth, the tail-warping factor of CPI in May was 0.1%, an increase of 0.2 percentage points over April (see figure 6).
CPI is expected to be in a positive growth phase during the year and will pick up moderately as a whole. For example, non-food prices, which account for a large proportion of CPI, rose 0.7% in the first quarter from a year earlier, unchanged from last year, reflecting a steady recovery in activities such as the service industry. With the strengthening of macro policies and the recovery of demand-side during the year, prices are expected to pick up as a whole, from 0.0% in the first quarter to about 0.2% in the second quarter.
Second, the low base supports the narrowing of PPI decline, but the recovery of domestic demand is weak. PPI growth is expected to be-1.6% in May.
Industrial producer prices (PPI) fell 2.5 per cent in April from a year earlier, a decline of 0.3 percentage points from the previous month, of which the tail-warping drag was 0.5 percentage points lower than the previous month, which was the main contribution to the narrowing of the decline. Affected by the continued recovery of industrial production but the weak recovery of some domestic demand, PPI fell 0.2% month-on-month, an increase of 0.1% over the previous month, and the drag on PPI by the new price increase factor has increased. In terms of sub-structure, the means of production and means of livelihood decreased by 3.1% and 0.9% respectively compared with the same period last year, narrowing by 0.4 and 0.1 percentage points respectively. From a month-on-month point of view, the means of production decreased by 0.2% month-on-month, the mining and processing industry expanded, and the raw material industry remained unchanged at 0.3% last month. The month-on-month decline in the means of livelihood was unchanged from-0.1% last month, and the prices of food, clothing, and general daily necessities were all the same or rebounded from the previous month, only the prices of consumer durables decreased from the previous month, indicating that against the background of weak terminal demand, consumer demand for durable goods has declined (see figure 8).
From the perspective of the industry, the prices of crude oil chain and black chain rise and fall, reflecting the difference in toughness between internal and external demand. First, affected by the rebound in the prices of crude oil, non-ferrous metals and other commodities in the international market, the prices of crude oil chain and non-ferrous chain industries have rebounded. For example, the prices of the oil and natural gas mining industry, the non-ferrous metal calender industry, and the non-ferrous metal mining and selection industry all recorded positive growth on a month-on-month basis, and the increase ranked at the top. Second, due to sufficient supply, but depressed real estate demand, ferrous metal mining, coal mining, ferrous metal processing and calender, non-metallic minerals and other industries have recorded negative growth, and the decline has expanded. Third, affected by the slow recovery of domestic demand, prices in most mid-and downstream industries also recorded a small negative growth compared with the previous month.
PPI growth is expected to be-1.6 per cent in May 2024. First, the tail-warping factor of PPI in May is 0.9% higher than that in April (see figure 10); second, due to the expectation of the Federal Reserve to cut interest rates and the uncertainty of the geopolitical situation, the probability of high crude oil prices in May is on the high side; third, the policy will support domestic industrial product prices in the short term, but it will take time for real estate demand to return, and domestic industrial product prices should not be overestimated.
The decline in PPI is expected to gradually narrow, with a high probability of negative growth for the whole year. It is expected that the low base effect, the upgrading of the geopolitical situation, and policy efforts on the front all continue to support the decline in PPI. The PPI hub is expected to be around-1.7% in the second quarter, showing a trend of narrowing month by month, but the constraints of low real estate demand and slow recovery of the domestic large cycle are strong, and the recovery of new PPI price increases is limited. The probability of negative growth for the whole year is on the high side, and the pattern of low inflation remains unchanged.
Third, the negative scissors difference between PPI and CPI narrowed slightly, and it is expected to continue to narrow in the future.
The scissors difference between PPI and CPI reflects the change of profit space of industrial enterprises to some extent. The widening scissors gap between PPI and CPI usually means a continuous repair of corporate profits and economic momentum, and vice versa (see figure 11-12). The scissors gap between PPI and CPI after the epidemic has experienced a process of enlargement-narrowing, and the expansion stage is mainly driven by the price increase of upstream raw materials, with remarkable structural characteristics, not a comprehensive price increase, and the corresponding decline stage is mainly dominated by a high base, and the price increase driven by the recovery of domestic demand is not obvious. In the case of weak recovery of domestic demand, the ability of mid-downstream industries to transfer costs is still weak, resulting in a strong squeeze effect of upstream raw materials on middle and lower reaches profits, thus suppressing the willingness of middle and lower reaches enterprises to invest and expand production. it is not conducive to the recovery of domestic economic momentum.
The scissors gap between PPI and CPI narrowed slightly to-2.8 per cent in April from-2.9 per cent last month, supporting the improvement in industrial profits. Looking back, under the influence of factors such as the recovery of domestic demand, the forward force of policies, and the impact on the global energy supply side, it is expected that CPI and PPI will continue to pick up in the future, the negative scissors gap between them will continue to narrow, and the drag on the profits of industrial enterprises is expected to continue to weaken.
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