CPI inflation in January was -08%, weaker than the market expectation of -05%。The month-on-month growth rate was 03%, for the second consecutive month**; PPI inflation -25%, in line with market expectations. The month-on-month growth rate was 02%, continued**.
The price data in January as a whole showed the structural characteristics of "services are stronger than commodities, and residents are stronger than enterprises". In terms of CPI, food products other than pork** were significantly weaker than seasonal levels, which directly led to a sharp weakening of the overall reading, while in terms of core inflation, especially the services sub-item, ** has shown signs of stabilization; In terms of PPI, the upstream has stopped falling under the influence of the stabilization of commodities, but the middle and downstream are still downward. The reason behind this is that the supply of commodities is relatively rigid, and the economic behavior of the corporate sector is not as elastic as that of the household sector, so the sequence of the convergence process of the supply-demand gap takes shape. 1. CPI inflation: a new lowCPI inflation recorded -0 in January8%, hitting a new low in this round, and food ** is the main drag. Figure 1: CPI inflation hits new lows
Data**: Wind, China Merchants Bank Research Institute Although pig prices have stopped falling under the influence of continuous de-production capacity, the performance of other food products is far from the seasonal level. Food sub-item**month-on-month**04%, year-on-year **59%, dragging down CPI inflation by 115pct。In terms of pork, the sows that could reproduce continued to go in December last year, and the pig price has shown signs of bottoming out in January, and the month-on-month decline narrowed to 02%, and the year-on-year is affected by the base**173%；In terms of other foods, unlike the month-on-month increase in January of previous years, the performance of other foods** was weak in January this year. Edible oil, beef and mutton, eggs, milk, fresh fruits**comprehensive**, only fresh vegetables and aquatic products two sub-items***Figure 2: Pig prices continue to grind to the bottom
Source**: Wind, China Merchants Bank Research Institute Energy** The drag on inflation has narrowed significantly. In January, the fuel used in transportation ** fell slightly by 01%, year-on-year **10%, which is a negligible drag on overall inflation. Affected by the improvement in demand, the month-on-month momentum of core inflation was in line with the seasonal level for the second consecutive month, 03% was the biggest increase since August last year. In terms of services, tourism, housekeeping services and other sub-items were seasonally stronger, only rents were slightly affected by weak housing prices, and services were 04% are seasonal; In terms of goods, furniture** for 2 consecutive months**, mobile phones and automobiles** are still **, but the decline has slowed down significantly compared with the previous stage, and the decline in clothing** is also in line with the seasonal level. On a year-on-year basis, the core inflation reading fell back to 04%。Figure 3: Core CPI MoM Momentum Meets Seasonal Levels
Source**: Macrobond, China Merchants Bank Research Institute2. PPI inflation: low**The convergence of the supply-demand gap has not yet been transmitted from the consumption side to the production side, and the PPI continues to be a year-on-year and month-on-month double ** pattern. In January, the manufacturing PMI continued to "expand production and contract demand", and PPI inflation was at a low level, 02%, year-on-year **25%。Figure 4: PPI Index Continues to Underperform
Data**: Macrobond, China Merchants Bank Research Institute From the structural point of view, the upstream ** has stabilized under the influence of bulk commodities**, but the middle and lower reaches** are still weakened by the impact of oversupply. Affected by the weakening expectations of the Federal Reserve's interest rate cuts, the decline in January was stopped and the upstream PPI readings were supported. However, the overall oversupply pattern of the manufacturing industry is difficult to change in the short term, and the middle and lower reaches have not yet stabilized. The trend of key industries** also points to the fact that the gap between supply and demand has not narrowed. Automobile manufacturing, TMT manufacturing, and general equipment manufacturing** have all not stopped falling, echoing the main durable goods in the CPI** continuously**. Figure 5: The upper, midstream and downstream of the PPI are in the contraction range
Source**: Macrobond, China Merchants Bank Research InstituteFigure 6: Decline Convergence
Source**: Macrobond, China Merchants Bank Research Institute, the pattern of weaker PPI inflation in the corporate sector than in the residential sector has also not changed. The PPI of means of living in January increased by **1 year-on-year1%, 02%, which continues to be weaker than CPI performance. From a structural point of view, the most obvious marginal improvement in CPI inflation is mainly in the service industry, and the improvement in goods** with a higher correlation with PPI inflation is not obvious, which indirectly leads to the continued weakness of PPI inflation. 3. Forward-looking: twists and turns repairLooking forward, the process of stabilizing the level driven by the convergence of the supply-demand gap will continue, and the CPI is ahead of the PPI in terms of rhythm. In terms of CPI, the number of sows that can reproduce has fallen to a low level, and the pig price has most likely bottomed out. In terms of PPI, readings are also expected to bottom out as downstream demand recovers further. 