Analysis Of CPI And PPI; Scissors Gap And Why Expansion Means What

Since the beginning of this year, domestic price operation has continued to differentiate. According to the data released by the National Bureau of statistics, the producer price index (PPI) rose 1.7% year-on-year in February, while the consumer price index (CPI) fell by 0.2% year-on-year. The "scissors gap" between the two was widened compared with January.

As an economic indicator reflecting the price changes in the production and consumption sectors in a certain period, why does the "scissors gap" of PPI and CPI expand? What does the differentiation of the two trends mean?

CPI and PPI trend differentiation

Since this year, CPI has been operating in a negative range for two consecutive months. From the data of February, CPI fell by 0.2% year-on-year, 0.1 percentage point narrower than the previous month. Among them, the food price increased from 1.6% in the previous month to a decrease of 0.2%, which affected the CPI decrease by about 0.05%.

Tang Jianwei, chief researcher of the financial research center of Bank of communications, said that due to the high base formed by the sharp rise in pork prices at the beginning of last year, pork prices in February this year fell by 14.9% year-on-year, a significant increase of 11 percentage points compared with the previous month. The pulling effect of pork price on CPI was - 0.4%, which was an important reason for the decline of food price.

However, the year-on-year increase of PPI continued to expand on the basis of becoming positive in January. The year-on-year increase in February was 1.7%, 1.4 percentage points higher than that of the previous month. From a month on month basis, PPI rose 0.8%, in a rising trend for 9 consecutive months. Affected by the continuous upward trend of international crude oil prices, the prices of domestic oil related industries continued to rise; with the rise of domestic demand and the continued rise of international metal commodity prices, domestic prices of ferrous metal mining and dressing industry, ferrous metal smelting and rolling processing industry, nonferrous metal refining and rolling processing industry increased by 5.9%, 2.3% and 1.5% respectively.

"In theory, the changing trend of PPI and CPI should be basically synchronous. PPI represents the production sector more, while CPI represents the consumer sector. Price increases in the production sector usually lead to price increases in the consumer sector. However, from the recent data, the "scissors gap" between PPI and CPI is expanding, and there is an out of sync situation. " Wen bin, chief researcher of China Minsheng Bank, said that on the one hand, the rise in commodity prices is the main reason for the accelerated recovery of PPI. On the other hand, the increase of food price with higher weight in CPI significantly decreased year-on-year, especially pork price, which led to the negative growth of CPI at present.

Wen bin believes that in the next stage, CPI trend is still affected by the structure. The economic recovery of major economies in the world, such as the United States, is likely to accelerate, and the increase in demand may drive commodity prices to continue to rise. China's PPI began to decline significantly in March last year. It is expected that the rise in commodity prices and the base effect will continue to promote the rise of PPI.

What is the impact of the "scissors gap" expansion

Wang Jun, chief economist of Zhongyuan bank and member of Academic Committee of China International Economic Exchange Center, believes that the main reason for the expansion of "scissors gap" is the imbalance of economic recovery. The accelerated upward trend of PPI is affected by many factors. From the perspective of domestic factors, the steady economic recovery, especially the resilience of real estate investment, has led to the rise of upstream raw material prices; from the perspective of international factors, the economic recovery and inflation expectations are rising, and the global re inflation transaction is warming up day by day. The prices of crude oil, non-ferrous metals and other commodities continue to rise, which not only expands China's foreign demand through import channels, but also enhances the enthusiasm of domestic commodity market to do long through financial channels. Both of them jointly promote the import price rise.

"The year-on-year increase of CPI shows signs of gradually stabilizing at the bottom, but the overall situation does not have the basis for a sharp and rapid rise. The rapid recovery of investment and industry, and the slow recovery of consumption and service industries are important reasons for the expansion of the "scissors gap". This basic pattern will be strengthened in the first half of the year. " However, judging from the transmission mechanism of upstream and downstream and their respective influence mechanisms, the short-term and annual inflation pressure is relatively limited, so there is no need to worry too much about the risk of inflation resurgence.

PPI and CPI trend deviation, what will be the impact on economic operation? Wen bin believes that the expansion of the "scissors gap" reflects that the current recovery of social aggregate demand is not stable. In the case of fierce competition in the downstream industry, it is difficult to conduct the price rise of upstream raw materials through the way of price, which may form a "scissors gap" between PPI and CPI, and the "knife edge" may be expanded, which will bring certain difficulties and pressure to the operation of downstream production enterprises. Therefore, it is urgent to maintain the stability and continuity of policies and to stabilize and expand aggregate demand.

Prices will remain moderate throughout the year

As for the price trend of the whole year, Guo Liyan, director of the Institute of market and price research of China Macroeconomic Research Institute, believes that in the later stage, CPI is expected to return to the moderate growth range, showing a trend of "low in the first half of the year and stable in the latter part of the year", with a slight increase in the whole year; the year-on-year increase of PPI may continue to expand, reaching a relatively high point in the middle of the year, but the domestic industrial product capacity and supply are sufficient, and the market circulation is smooth It is expected to show a trend of "low at both ends and high in the middle" in the year, which is generally in a reasonable range.

Tang Jianwei believes that although CPI is at a low level, the new price rise factors have increased significantly since the beginning of the year, indicating that demand is improving. The economic recovery is superimposed on the rise of tail raising factors, CPI will rebound to positive value year on year, and PPI growth will be further expanded. On the whole, prices will run at a moderate level this year.

Although China's annual price trend is expected to be mild, experts also remind that the widening "scissors gap" between CPI and PPI means that the economic recovery of various sectors in China is not synchronized, and the global economic recovery is not synchronized. "The deviation of the two will increase the difficulty and complexity of macro-control to a certain extent." Wang Jun said.

In terms of policy response, Wang Jun suggested that, on the one hand, we should pay close attention to the impact of global economic recovery and re inflation transactions on China's price trend, closely track and effectively manage the input risk of inflation this year, so as to avoid the constant strengthening of inflation expectations of individuals, enterprises and even the market and the self realization of inflation. On the other hand, the continuous change of internal and external demand puts forward new requirements for macro policy. It is necessary to balance short-term fluctuation and long-term development by cross cycle regulation and control, so as to solve the structural and long-term problems in the process of economic development.

Wen bin believes that it is still too early for the Federal Reserve to tighten monetary policy by raising interest rates and other means. However, if the economy recovers strongly in the second half of the year and inflation continues to be high, it can not be ruled out that the tightening effect can be achieved by reducing the scale of bond purchase, which will cause severe fluctuations in the global financial market. China's macro policy should pay close attention to the inflation trend at home and abroad, and be prepared to deal with new shocks.