PPI Deflation Aggravated CPI's Rebound: Where Does Monetary Policy Go?

According to the data released by the National Bureau of Statistics today, PPI fell by 4.8% in February, far exceeding expectations, the thirty-sixth consecutive month of decline.

But CPI grew by 1.4% compared to the same period last year, and the accident was better than expected.

After the two rate cut and a full scale reduction in 3 months, is the deflationary pressure facing China slowing down and the future direction of monetary policy? Some analysts believe that the Spring Festival factor is the main reason for the rise of CPI. Deflation trends are hard to change, but there are also opponents:

Shen Wan Hongyuan's macro team believes that China's economy is still in a state of deflation.

Judging from the classification, food prices higher than expected is the main reason why CPI is slightly higher than expected. Domestic demand determined product price rise or fall is the main reason why PPI is lower than expected.

The average CPI rose by 1.1% in 1-2 months (the annual target 3%), and PPI rose by -4.6%, still showing a deflation state.

According to the broker, deflation will present a trend of self strengthening according to the policy lag and historical experience. At least 6 months, this pattern can hardly be substantially changed.

Europe has a broad margin. It is expected that the trend of lowering interest rates in China will only be strengthened.

Cao Yang, an analyst at Pudong Development Bank, pointed out that the risk of deflation in the industrial production area has increased, which has both the impact of the sharp decline in crude oil prices and the continued slowdown in industrial production.

The price of the oil industry chain has dropped considerably, for example, the oil and natural gas extraction industry has fallen by 15.7% compared with the price of the natural gas, and in addition, the price of the steel, nonferrous metals and coal industries related to the real estate industry chain is also declining.

Cao Yang believes that the price area presents "CPI stable, PPI weak" pattern, but because the pig cycle has little impact on CPI, the core CPI growth is only 1.4%, which will not restrict the loose monetary policy.

Deflation in the industrial sector makes policy loosening even more demanding. For example, interest rate cuts can at least reduce the financial cost of enterprises and reduce the impact on capital chain when operating income falls.

China's central bank is expected to cut interest rates by 25 basis points in the 2 quarter.

It is also necessary to improve credit conditions with PSL and other quantitative easing.

Similarly, there is a macro team of Minsheng securities. Due to the influence of Spring Festival factors, "CPI is expected to exceed expectations, but the downward pressure on prices will not change easily":

In general, prices will rise seasonally during the Spring Festival. Last year's Spring Festival is January. This year's Spring Festival has completely fallen in February, and the rebound of CPI in February is expected.

Although the rebound was slightly higher than expected, price pressures did not slow down.

For example, the Spring Festival in 2012 completely fell in January, the CPI rebounded 1.5% in the month, and this month is 1.2%.

As long as the total demand for the economy is not yet improving, there is downward pressure on prices.

The above analysis is quite different from the view that Hai Qing, the head of fixed income research and chief analyst of CITIC Securities, believes that deflation is a false proposition.

Deng Haiqing believes that the recovery of CPI is not a separate event. It is only attributable to the fact that the Spring Festival factor may be misjudged. Oil price stability is the main cause. We should combine the trend analysis of PMI and other macro data to understand the essential changes.

The people's macro team also noted the impact of price stabilization on prices.

Food ring ratio rose 2.9%, pork, fresh vegetables, fresh fruit prices rebounded purely for the Spring Festival effect *, may also increase the cost of pportation because of the rebound in oil prices.

PPI narrower than the decline, the main reason is the rebound in oil prices in February.

But for the future monetary policy, people's livelihood macro is totally different from Deng Haiqing's.

Think this time

Mainly driven by the Spring Festival, the macro level of people's livelihood indicates that the current steady growth is hard to resist the combination of real estate downside, local debt expansion and capacity contraction.

Deflation and

Considering the precaution, money will continue to be loose, and lowering interest rates in February will not be the end of monetary easing.

And Deng Haiqing believes that the market for central bank monetary easing is expected or blocked, once again cut interest rates gradually away from us:

We insist on judging the rate cut before the two sessions. This is the last rate cut in the whole year. CPI rises, the economy stabilise, and the Fed raises interest rates.

The bond market has changed from last year's "feast of the sea" to "the cold shoulder".