What Is The Risk Of Deflation In China?

This year's price trend is not optimistic. The author expects that CPI will rise around 1.6% in the whole year.

Although such gains are hard to say deflation, it is unfavourable for the manufacturing industry to continue to face the fact that the real interest rate is too high.

In the future, more measures should be taken to maintain the neutrality of monetary policy. Even a series of measures to reduce interest rates (such as the three rate cut and the five reduction) are essential.

What is the risk of deflation in China? How big is China's deflation risk?

CPI fell to below 1% in January, triggering market deflation concerns.

What is the risk of deflation this year? In my view, the risk of deflation is worth paying attention to in the context of weak domestic demand, falling commodity prices and overcapacity. But on the whole, the author expects that the annual CPI increase or around 1.6% is still hard to say that it will eventually fall into deflation.

CPI inflation in January has risen below 1%, rising only 0.8%, and a new low since January 2009.

Among them, food prices rose 1.1% over the same period, and non food prices rose by 0.6%, all down from last month.

From the point of view of the chain ratio, the price of foodstuffs increased by 0.7% compared with that of non food prices, which led to an increase of 0.3 percentage points in the month of CPI.

In terms of food prices, the prices of fresh vegetables, fresh fruits and aquatic products rose by 4%, 3.9% and 2.2%, respectively, but the price of pork fell down by 1.4%, affecting CPI by 0.04 percentage points in the same period.

Non food prices were in line with PPI's downward trend. In January, traffic and communications prices fell by 0.4%, indicating the impact of energy price fall.

Prices of medical care and personal products, entertainment, educational and cultural goods and services, household appliances and maintenance services rose by 0.4%, 0.4% and 0.2% respectively.

Looking forward to the future, even though February is the Spring Festival year, seasonal factors will generally lead to a rise in food prices. But due to the mild climate this year and the overall decline in pork prices, food prices in February are expected to rise less than in the past Spring Festival. Non food prices will continue to maintain zero growth. Under this circumstance, the author predicts that CPI will remain at 1.1% low in February.

Further, many deep-seated contradictions show that deflation risks faced by China's economy this year should not be underestimated.

Specifically, first, domestic demand remains weak.

Although the main January

It is not known that the merger announcement will be made in February.

But the weak PMI data in January, pessimistic negative import growth, declining industrial profits, and the real estate market with a drop in sales ratio show that the fundamentals of China's economy are not optimistic.

Two is

The global commodity market has entered a cold winter under strong and weak global demand.

Data show that the US dollar index has risen nearly 20% compared with last March. Historically, the US dollar trend is often negatively related to the trend of commodities.

Taking into account the shortage of global demand and ample supply this year, major commodity prices are expected to remain low this year, which is not conducive to domestic deflation.

Three, the situation of excess capacity is still continuing.

current

The contribution to GDP has exceeded investment and shows that with the continuation of structural pformation, it is expected that the excess capacity will remain for some time.

At the same time, the real estate market is cold and the related industries are weak, which is also unfavorable to resolve excess capacity.

It seems that this year's price trend is not optimistic, the author expects that the annual CPI increase or around 1.6%.

Although such gains are hard to say deflation, it is unfavourable for the manufacturing industry to continue to face the fact that the real interest rate is too high.

The author believes that in the future, more measures should be taken to maintain the neutrality of monetary policy, and even a series of measures to reduce interest rates (such as the three rate cut and the five reduction) are essential.

At the same time, in order to ensure that there is no big risk in the macro-economy this year, more supporting measures need to be followed up simultaneously. More active fiscal policies and comprehensive reform measures are the direction of efforts.