Prices are expected to be moderate overall this year.

In February, CPI increased year-on-year, while PPI decreased year-on-year, which was caused by short-term and hikes.
——Prices are expected to be moderate overall this year.

On March 9th, the National Bureau of Statistics released the National Consumer Price Index (CPI) and the Industrial Producer Ex-factory Price Index (PPI). The data shows that in February, CPI rose by 2.9% year-on-year and 1.2% quarter-on-quarter; PPI increased by 3.7% year-on-year and decreased by 0.1% quarter-on-quarter.

According to experts, although the CPI in February was significantly higher than that in the same period of last year, factors such as market supply and demand have not changed substantially, and it is difficult for short-term factors to have a trend impact on the price trend, so there is no inflationary pressure in China’s economy this year.

The Spring Festival "Wrong Month" has led to an increase in CPI.

In February, CPI rose by 2.9% year-on-year, an increase of 1.4 percentage points over the previous month. Since February 2017, it entered the "2 era" for the first time, setting a new high since December 2013.

"The year-on-year increase in CPI was mainly affected by the’ wrong month’ factor in the Spring Festival." Sheng Guoqing, a senior statistician of the Urban Department of the National Bureau of Statistics, said that this year’s Spring Festival was in February, while last year’s Spring Festival was in January, which caused the comparison base in February to be relatively low. In addition, the price increase of food and services before and after the Spring Festival led to the year-on-year increase of CPI.

Lian Ping, chief economist of Bank of Communications, believes that CPI’s year-on-year increase of 2.9% is a new high in the past four years, and it may also be a high in this year. This year’s Spring Festival holiday is all in February, and consumer demand is strong. At the same time, the low temperature affects food production and supply. Food prices rose by 4.4% year-on-year, an increase of 4.9 percentage points over the previous month, which was the first positive year-on-year growth in the past year. Among them, the prices of eggs, fresh vegetables, fresh fruits and aquatic products rose sharply, with year-on-year increases of 22.5%, 17.7%, 8.7% and 8.7% respectively. In addition, the year-on-year increase of CPI in February last year was only 0.8%, which was the lowest in the whole year. The low base has a significant lifting effect on CPI in the same period this year.

According to estimates, in the year-on-year increase of CPI of 2.9% in February, the impact of price changes last year was about 1.1 percentage points, and the impact of new price increases was about 1.8 percentage points.

In February, both the non-food price and the core CPI were 2.5%, which were 0.5 and 0.6 percentage points higher than the previous month. The tourist season of the Spring Festival has led to a marked increase in the prices related to transportation and tourism, with tourism prices rising by 13.5% year-on-year, in which the prices of air tickets and long-distance bus tickets rose by 19.7% and 5.8% respectively, and the prices charged by travel agencies rose by 12.2%. The price of services rose obviously, with the prices of medical services and domestic services rising by 7.2% and 7.9% respectively.

From a ring-on-ring perspective, in February, CPI rose by 1.2%, an increase of 0.6 percentage points over the previous month, and the ring-on-ring increase hit a new high since February 2016.

"The increase in CPI is larger than that of last month, which is mainly affected by the Spring Festival factor and the low temperature." On the one hand, the nationwide cooling weather affected the production and transportation of some agricultural products. In addition, during the Spring Festival, demand and consumption increased, and food prices rose, which affected the CPI increase by about 0.88 percentage points. Among them, the prices of fresh vegetables and fresh fruits increased by 18.1% and 6.4% respectively; The prices of aquatic products and livestock meat increased by 8.0% and 2.0% respectively, and the total impact of four fresh foods on CPI increased by about 0.82 percentage points. On the other hand, the number of travelers increased around the Spring Festival, which pushed up the price of transportation and tourism.

PPI growth narrowed for four consecutive months.

In February, PPI rose by 3.7% year-on-year, and the growth rate dropped by 0.6 percentage points from last month, which is also the narrowing of PPI growth rate for four consecutive months. Among them, the price of means of production rose by 4.8%, down 0.9 percentage points from last month; The price of means of subsistence rose by 0.3%, the same as last month.

Among the major industries, the non-metallic mineral products industry experienced a decline, rising by 13.0%, down 0.4 percentage points from last month; Ferrous metal smelting and rolling processing industry, up 11.5%, down 3.6 percentage points; Oil, coal and other fuel processing industries rose by 10.0%, down by 0.8 percentage points; Non-ferrous metal smelting and rolling processing industries rose by 7.4% and dropped by 3.0 percentage points; The manufacturing of chemical raw materials and chemical products rose by 6.1%, down by 2.1 percentage points. The above five industries together affected the year-on-year increase of PPI by about 0.57 percentage points. According to estimates, among the 3.7% year-on-year increase in February, the hikes of price changes last year were about 3.5 percentage points, and the impact of new price increases was about 0.2 percentage points.

From the ring comparison, in February, the PPI changed from 0.3% increase in the previous month to 0.1% decrease, which is the first time since July last year that the PPI changed from an increase to a slight decrease. Among them, the prices of means of production decreased by 0.1%, while the prices of means of subsistence remained flat.

This year’s government work report, which is being deliberated and discussed at the two sessions of the National People’s Congress, proposes that in 2018, China will adhere to the means of market-oriented rule of law, strictly implement laws and regulations such as environmental protection, quality and safety, resolve excess production capacity and eliminate backward production capacity. Experts believe that the current PPI growth rate has dropped in cardinal utility, but it will still be supported by de-capacity and environmental protection.

It is unlikely that CPI will continue to rise.

According to the government work report, in 2018, the consumer price in China will increase by about 3%. Whether this goal can be completed on schedule has attracted wide attention from all walks of life.

Sheng Guoqing said that in February, CPI was affected by the Spring Festival. However, considering the fading of "holiday factors", it is expected that the year-on-year increase of CPI will fall back in March.

Deng Haiqing, global chief economist of Kyushu Securities, believes that the year-on-year CPI data in February greatly exceeded market expectations, mainly due to low base and seasonal factors. As cardinal utility and seasonal factors fade, pork prices fall, and crude oil prices have shown a downward trend, the year-on-year CPI data will gradually decline, and high inflation is unlikely to occur in 2018.

From the perspective of PPI, Lian Ping believes that the year-on-year increase of PPI will be significantly lower than that of last year, as the PPI has dropped from the previous month and the new price increase factor has weakened. The main factors that affect the PPI trend are the hikes and the policy-limited production factors. The hikes are high in the first half of the year and low in the second half of the year, so it is more likely that the PPI increase will decrease as a whole. It is considered that the work of de-capacity will continue to advance, environmental protection and limited production will increase, and the prices of industrial products with large de-capacity, such as steel and cement, will not drop significantly in the short term, which will support product prices. Therefore, this year’s PPI increase may be significantly lower than last year, but there is little possibility of a year-on-year negative growth.

Lian Ping said that the comprehensive trend of CPI and PPI shows that it is expected that the difference between them will continue to narrow in the future, and the overall price operation will be moderate, which will provide a better environment for China’s economy to shift from high-speed growth to high-quality development, and on the other hand, it will leave flexible space for macro-policy operation. (Reporter Lin Huocan)