CPI increased year-on-year, and PPI is generally in a falling channel——
Why the CPI and PPI “Scissors Difference” Widens
With the weak global economic recovery and increasing downward pressure on the domestic economy, the development of the domestic real economy is facing the challenge of insufficient demand, resulting in a decline in PPI year-on-year. From the perspective of CPI, the year-on-year increase remained high, mainly due to the periodical tension in the supply and demand of individual foods such as pork. Experts suggest that China should continue to implement a proactive fiscal policy and a prudent monetary policy. At the same time, we must actively expand domestic demand and give play to the fundamental role of consumption and the key role of investment.
The consumer price index (CPI) and the industrial producer's price index (PPI) are important indicators for measuring the level of prices, as well as an important basis for observing whether an economy is experiencing inflation or deflation.
However, due to a variety of complex factors, in real economic life, CPI and PPI trends are often inconsistent. Especially since the second half of 2019, the year-on-year increase in CPI has expanded, and PPI has generally been in a downward channel, and the “scissors gap” between the two has continued to expand.
These two important indicators for measuring price levels deviate significantly. Are prices rising or falling? What important information is behind the "scissors"? In what ways will the departure from the two affect the economic operation? In response to these issues, the reporter interviewed relevant experts.
Different influencing factors
In the first two months of 2019, the year-on-year increase in China's CPI narrowed month by month, and the increase has continued to expand since March, and has entered the "5 range" since this year. Since the second half of 2018, the year-on-year increase in PPI has continued to fall. Although it rebounded slightly in individual months, it was generally in a downward trend.
CPI and PPI show different trends, and the "scissors gap" between them is also expanding. In December 2018, the year-on-year increase in CPI was 1 percentage point higher than that of PPI. Since then, the gap between the two has continued to widen, and has expanded to more than 5 percentage points since October last year.
"The year-on-year increase in CPI and PPI showed a" scissor gap ", mainly due to different factors affecting the trends of the two." Xu Hongcai, deputy director of the Economic Policy Committee of the Chinese Society for Policy Research, said that under the situation of weak global economic recovery and increasing downward pressure on the domestic economy, domestic The development of the real economy is facing the challenge of insufficient demand, resulting in a decline in PPI year-on-year. From the perspective of CPI, its year-on-year growth rate remained high, mainly due to the periodical tension in the supply and demand of individual foods such as pork.
"If the transmission channel is smooth, CPI and PPI trends should converge or have a strong correlation, but this is not the case." Tang Jianwei, chief researcher at the Bank of Communications Financial Research Center, analyzed that the main factor driving the expansion of the CPI year-on-year growth in recent years is supply Side disturbances, especially affected by factors such as the African swine fever epidemic, increased pork prices pushed up the CPI year-on-year increase. If food and energy prices are deducted, core CPI is generally at a low level, far from inflation. The year-on-year decline in PPI was mainly affected by the downward pressure on the economy and the decline in international commodity prices.
"In February this year, due to the impact of epidemic prevention and control, industrial enterprises stopped production and production, and the PPI went down from a year-on-year increase. The general public chose to leave less, but due to the rigid demand for food such as meat, eggs and vegetables, the procurement was more concentrated and the purchase volume increased. In addition, food is affected by factors such as logistics, and the supply tends to be tight, which promotes the year-on-year increase in CPI at a high level. "Tang Jianwei said.
Tang Jianwei also said that in the goods and services that constitute the CPI, the degree of marketization of the upstream and downstream is high, and the cost changes in the upstream link are easily transmitted to downstream and even consumers. In the field of industrial products, the downstream production capacity is large and the competition is sufficient, but the degree of marketization of upstream raw materials needs to be further improved, which also easily brings the “scissors difference” between CPI and PPI.
"The price difference is mainly affected by higher pork prices, lower commodity prices, and unsmooth transmission of upstream and downstream prices in China." Zhou Maohua, an analyst at the Financial Market Department of China Everbright Bank, analyzed that since 2019, the pork supply and demand gap has widened and pork prices have been soared. Consumer prices have risen sharply; prices of food and services such as fruits and vegetables have increased moderately overall. From the perspective of PPI, although it is related to weak domestic demand, it is mainly affected by weak global demand. Weak global demand growth has dragged down international commodity prices and also affected domestic PPI trends.
No "stagflation" basis
CPI and PPI deviate, especially in recent months, the year-on-year increase in CPI has entered a "five-range". PPI has fallen for many consecutive months, and the growth of major economic indicators has slowed significantly in the first two months of this year. Some people worry that China's economy will experience "stagflation".
"The so-called" stagflation "is a period of economic downturn, rising unemployment, and abnormally high prices in an economy. However, China's economic growth rate in 2019 is 6.1%, ranking among the top global economies, and the employment situation For the better, the pace of transformation and development of traditional kinetic energy is accelerating, new kinetic energy is accelerating, and the potential for economic development is continuously being released. There is no so-called stagflation foundation. "Zhou Maohua said.
"From the perspective of prices, China ’s CPI increased year-on-year, mainly affected by fluctuations in individual commodity prices, and there is no basis for overall price increases. Moreover, in recent years, China's economy has maintained a medium and high speed growth and the quality of economic development has steadily improved. The economic growth in the first quarter of this year The speed may slow down significantly, but this is mainly affected by the epidemic, not due to insufficient endogenous motivation. "Xu Hongcai said.
In Tang Jianwei's opinion, judging from economic theory, whether to "stagflate" needs to meet three criteria at the same time. One is that the economy is stagnant or showing negative growth; the other is that there is obvious inflation and the inflation level has reached double digits or higher than the economic growth rate; the third is that the unemployment rate is high. Measured from these three standards, the fluctuation of China's main economy in individual months is not a typical "stagflation".
Many economists believe that based on the year-on-year increase in CPI and the year-on-year decline in PPI, we cannot simply draw the conclusion that China's economy is "stagflation". However, the “scissors gap” between CPI and PPI continues, which will also have an impact on economic operations to a certain extent.
Xu Hongcai analyzed that the year-on-year increase in CPI continued to increase, which means that the actual interest rate on bank deposits will decrease, which will affect the property income of ordinary people and then affect consumption. PPI continued to fall year-on-year, the company's balance sheet will shrink, financing costs and leverage will rise, which will inhibit further expansion of investment.
If the CPI and PPI form a significant divergence in the long term, it will also increase the difficulty of macro-control. "If the PPI continues to decline, it means that the industrial sector continues to be depressed and business performance declines, which requires easing policies. However, easing policies can easily lead to consumer-side inflation and even cause some local risks to continue to accumulate." Zhou Maohua said.
Expand effective demand
After entering the second quarter, as the epidemic prevention and control effect continues to show up, the temperature gradually rises, and along with the continuous release of a series of policies to encourage pig farming, the price of agricultural products is expected to decline steadily, and the CPI increase will gradually narrow. However, due to the impact of imported deflation in commodity prices such as international crude oil, PPI may maintain a downward trend year-on-year. The "scissors difference" between CPI and PPI will still remain for some time.
According to Xu Hongcai's analysis, from the perspective of consumer products, the supply chain has been affected by the impact of the epidemic situation, but with the resumption of work and production, and the effect of the hog breeding policy, the supply of vegetables and fruits is sufficient, and the year-on-year increase in CPI will be "high before low" . The “scissors” between CPI and PPI are expected to narrow by the end of the year.
"To cope with the adverse effects of the" scissors gap "on economic operation and macro-control, the key is to continue to expand effective demand. Xu Hongcai suggested that at present, global demand is weak and the world economy is weak. China should continue to implement a proactive fiscal policy and stability. Monetary policy. Proactive fiscal policy must vigorously improve quality and efficiency, and prudent monetary policy must be flexible and appropriate, and maintain reasonable and adequate liquidity. At the same time, we must actively expand domestic demand and give play to the fundamental role of consumption and the key role of investment.
"The main sticking point that affects the divergence between CPI and PPI is structural problems. Governance of" scissors "requires comprehensive measures to continue to deepen supply-side structural reforms." Zhou Maohua suggested that on the one hand, we must continue to implement a series of policy deployments by the central government to stabilize prices, especially It is to continue to carry out special governance in response to pork supply issues, strive to increase market supply, and cooperate with logistics, health supervision and other departments to innovate supply models and reduce the impact of cyclical fluctuations in pig breeding. On the other hand, we must pay close attention to the consumption upgrade demand of the masses, provide certain support to potential enterprises to help them overcome difficult times, and guide industrial transformation and upgrading through fiscal and credit structural policies to achieve domestic supply and demand rebalancing and promote high-quality economies. development of.
Tang Jianwei believes that the overall CPI will tend to fall in the future, and inflation pressure is expected to ease. From the perspective of PPI, the drop in oil prices and the decline in commodity prices will have a more significant impact on PPI. The epidemic will slow down production and demand, and the decline in PPI may increase. In the future, with the effective control of the domestic epidemic, the steady increase in infrastructure investment and other intensified efforts may drive industrial production to recover, and then the PPI is expected to gradually pick up.
Economic Daily, China Economic Network reporter Lin Huocan