the trend behind the price increase
2024-09-17
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(the author of this article is xie yunliang, chief macro analyst of cinda securities)
1. temporary and seasonal increase in food prices
we previously pointed out that the cpi in july underestimated the increase in food prices. it seems that this trend has continued in august, but the month-on-month increase in the core cpi is the lowest level in the same period in the past decade.
the rise in cpi in august was the result of a temporary increase in fruit and vegetable prices. the cpi rose slightly to 0.6% year-on-year in august, mainly boosted by food prices, but the pig cycle was not the main reason for the further rebound this time. although the overall cpi and multiple sub-items were lower than the seasonal changes in 2017-2019, the changes in food, tobacco and alcohol items exceeded the seasonal increase (figure 4). the pork cpi in august was 16.1% year-on-year, a decline from the increase in july. the different changes in the pork cpi and the consumer goods cpi show that the further increase in food prices is not due to the pig cycle. affected by high temperatures and rainy weather, the price of fresh vegetables rose beyond the seasonal level (figure 2). we believe that the main reason for the boost to the august cpi was the temporary increase in fruit and vegetable prices caused by the extreme high temperature weather, and the temporary increase caused by extreme weather is difficult to form a sustained support.
unlike the further rise in cpi, the core cpi is the lowest level in the same period in the past decade. we pointed out in previous reports that the cpi in july this year rose more than expected year-on-year, but its core cpi is still weakening. in the past three months, the trend of "rising" cpi year-on-year and "falling" core cpi year-on-year has continued until august (figure 5). not only that, the cpi of services and consumer goods, food and non-food cpi also showed the same trend, which shows that the current domestic demand is temporarily in a relatively weak state. since the temporary rise caused by extreme weather is difficult to form a sustained support, we believe that the subsequent core cpi year-on-year data may continue to operate at a low level.
looking at the whole year, we believe that the cumulative cpi in 2024 may still be around 0.6%.
2. the structural problems of the economy are reflected in ppi prices
the structural problems of the economy are reflected in ppi prices.the august pmi showed multiple structural problems in the economy. first, the manufacturing industry's business climate declined, while the non-manufacturing industry's business climate rebounded; second, the service industry's business climate improved, while the construction industry's business climate declined; third, the basic raw materials industry's business climate was weak, while the equipment and high-tech manufacturing industry's business climate improved; fourth, new orders slowed down, while new export orders rose slowly.the decline in ppi in august may be a reflection of the weak business conditions in the basic raw materials industry (i.e., high-energy-consuming industry).in august, the ppi was -1.8% year-on-year. the continued decline in industrial product prices in august was mainly due to the decline in the prices of means of production.
the resistance to ppi turning positive has increased significantly this year. among the manufacturing sub-items, the price performance has declined most significantly, with the main raw material purchase price index falling by 6.7 percentage points and the ex-factory price index falling by 4.3 percentage points. both have declined significantly compared with july, which is consistent with the performance of the nanhua industrial product price index. the overall market price index fell in august, indicating that the new price increase factors of ppi in that month were weak, and ppi fell significantly in august.although the market has anticipated a decline in ppi, the year-on-year performance of ppi in august was still lower than market expectations, reflecting that the resistance to ppi turning positive this year has increased significantly.
the structural characteristics of the current economy still exist, with the main support coming from external demand and new quality productivity. the high-tech and equipment manufacturing industries in the manufacturing industry may benefit from policies such as old for new, while traditional industries (such as the basic raw materials industry) still face the problem of insufficient effective demand.
risk factors: geopolitical risks, unexpected rise in international oil prices, etc.
this article only reflects the author’s views.
