Looking ahead: The impact of tariff shocks on PPI is greater than on CPI. In the future, we still need to pay attention to repairing domestic demand to support inflation
Zhitong Finance App learned about the report. Shen Wan Hongyuan released a research report saying that on May 10, the National Bureau of Statistics released the April inflation data. CPI was -0.1% YoY, -0.1%, expected -0.2%, and 0.1% month-on-month; PPI -2.7% YoY, previous value -2.5%, expected -2.8%, and -0.4% month-on-month. Although the decline in international commodity prices dragged down PPI performance, the domestic “trade-in” policy boosted a recovery in demand for core commodities, compounded by the tightening of food supply and a recovery in service consumption, and CPI rose slightly month-on-month. In the future, we need to pay attention to the suppression of PPI due to low utilization of production capacity in the middle and downstream under tariff pressure, and the supporting effect of domestic demand repair policies on inflation.
Shen Wan Hongyuan's main views are as follows:
The decline in international oil prices, combined with weak demand for steel, coal, etc., the fall in commodity prices in April posed a major drag on PPI
PPI in April was -0.4% month-on-month. Domestic oil prices continued to fall as a result of falling international oil prices. Oil extraction (-3.1%) and petroleum processing PPI (-2.6%) were both negative month-on-month, and it is estimated that oil prices dragged PPI down -0.1% month-on-month. At the same time, the real estate boom has declined, the supply of coal is sufficient, and the prices of steel and coal have also declined. Corresponding PPIs for black rolling and coal mining are -1% and -3.3% month-on-month, respectively. According to estimates, steel and coal prices dragged down PPI -0.3% month-on-month. However, the contribution of copper prices was positive. It is estimated that copper prices supported PPI by 0.1% month-on-month.
The fall in prices in the middle and downstream industries has also limited the recovery in PPI. It not only reflects the impact of tariff shocks, but is also related to the low utilization rate of domestic production capacity in the middle and downstream
Low profit margins on midstream and downstream production capacity are still a drag on PPI in corresponding industries. In particular, prices in some export industries fell month-on-month due to increased US tariffs. For example, prices in the automobile manufacturing industry fell 0.5% in April, while prices in the furniture manufacturing industry and metal products all fell 0.2%. It is estimated that the low utilization rate of midstream and downstream production capacity dragged down PPI -0.2% month-on-month.
However, the impact of tariffs on the CPI of core commodities is limited. It is mostly stimulated by the “trade-in” policy, and the release of demand for corresponding products has led to a simultaneous rise in prices
Core product PPI fell 0.2 pct to -1.7% year on year in April, while core product CPI was only -0.1 pct to 0.1% year over year. Among them, the CPI does not collect discounted prices with restrictive conditions, and the government still collects the original price for trade-in products. Stimulated by the “trade-in” policy, the recovery in demand for consumer goods led to an increase in prices. For example, the CPI for household appliances and means of transportation rose 0.1 and 0.2 pct, respectively.
At the same time, the short-term reduction in the supply of fresh vegetables, fresh fruit, etc. improved food CPI
Food CPI rose 1.2pct year over year to -0.2% in April. The improvement in food prices is related to the tightening of supply. On the one hand, the supply of new fruit declined at the beginning of the market, and the price of potatoes and fresh fruit rose 4.7% and 2.2% respectively; on the other hand, the decline in imports caused beef prices to rise by 3.9%. However, pig storage continued to recover in the early stages, pork supply was sufficient, and CPI declined to 5% year over year.
Higher gold prices support rising prices of other goods and services, contributing greatly to overall CPI
The price of gold jewelry rose 35.8%, and the CPI for other goods and services, including jewelry, rose 0.4 pct to 6.6% year on year, contributing 0.4% year on year to CPI.
In addition, the recovery in consumption of core services also supports service CPI
In April, service CPI was 0.3% month-on-month, the same as in previous years. Structurally, the CPI for core services was 0.44% month-on-month, slightly better than seasonal (0.37% month-on-month). Due to a combination of rising demand and holiday factors, travel service prices have clearly rebounded. Airline tickets and vehicle rental costs increased by 13.5% and 7.3% respectively, which was higher than seasonal. However, the biggest single item in service CPI is a virtual rent CPI that anchors rent changes. The high youth unemployment rate continues to suppress rent CPI; in April, the CPI for rent was 0% month-on-month, lower than seasonal (0.2%).
Looking ahead: The impact of tariff shocks on PPI is greater than on CPI. In the future, we still need to pay attention to repairing domestic demand to support inflation
In terms of PPI, tariffs may increase the pressure on domestic production capacity in the middle and downstream, and enterprises may actively reduce prices, thereby dragging down PPI. PPI is expected to be -2.9% year-on-year in the second quarter. In terms of CPI, although increased tariffs may put a lot of downward pressure on PPI, products may also actively reduce prices, and there is also a downside risk of CPI in the second quarter. However, the April Politburo meeting of the Central Committee emphasized “unswervingly doing one's own business well,” and with subsequent increases in policies such as promoting consumption and expanding domestic demand, the recovery in domestic demand may support inflation.
Regular tracking: CPI remained flat year over year, food CPI and core service CPI were better than previous years
Food and Catering: CPI remained flat year-on-year in the previous month, and food CPI rebounded significantly. In April, CPI was -0.1% year over year, the same as the previous month. Among them, the food CPI in March was -0.2 year on year, up 1.2 pct from the previous month.
CPI for non-food consumer goods: CPI for household appliances, transportation and communication rebounded, while fuel prices for vehicles fell sharply. The CPI margins for household appliances and means of transportation increased by 0.1 and 0.2 pct, respectively. Meanwhile, the CPI of fuel for vehicles was -4.5 pct compared to the same period last year.
Service CPI: Travel demand rebounded in April, and the CPI performance of core services was better than in previous years. In April, the overall service CPI remained flat at 0.3% year-on-year, with core services CPI 0.44% month-on-month, slightly better than seasonal (0.37% month-on-month).
Risk Alerts
The food supply is tighter than expected, and the energy supply is tighter than expected.
