What does the change of price index mean？

Since the beginning of this year, the domestic price operation has continued to differentiate. According to the data released by the National Bureau of Statistics, the ex-factory price index (PPI) of industrial producers increased by 1.7% year-on-year in February, while the consumer price index (CPI) decreased by 0.2% year-on-year.

As an economic indicator that reflects the price changes in the production field and consumption field in a certain period, why does the "scissors difference" between PPI and CPI widen? What does the differentiation of the two trends mean?

Trend differentiation of CPI and PPI

Since the beginning of this year, CPI has been running in a negative range for two consecutive months. According to the data in February, CPI decreased by 0.2% year-on-year, and the decline rate was 0.1 percentage point narrower than that of last month. Among them, the price of food changed from 1.6% last month to 0.2%, which affected the CPI by about 0.05 percentage points.

Tang Jianwei, chief researcher of the Bank of Communications Financial Research Center, said that due to the high base of pork prices at the beginning of last year, pork prices fell by 14.9% in February this year, a significant increase of 11 percentage points over the previous month. The pulling effect of pork price on CPI is -0.4% year-on-year, which is an important reason for the decline of food price increase.

The year-on-year increase in PPI continued to expand on the basis of turning positive in January. In February, it rose by 1.7% year-on-year, an increase of 1.4 percentage points over the previous month. From the ring comparison, PPI rose by 0.8%, and it was on the rise for 9 consecutive months. Affected by the continuous upward trend of international crude oil prices, the prices of domestic oil-related industries continue to rise; With the rising domestic demand and the rising international metal commodity prices, the prices of domestic ferrous metal mining and dressing industry, ferrous metal smelting and rolling processing industry, nonferrous metal smelting and rolling processing industry rose by 5.9%, 2.3% and 1.5% respectively.

"In theory, the changing trend of PPI and CPI should be basically synchronized. PPI represents the production sector and CPI represents the consumer sector. The price increase in the production sector usually causes the price increase in the consumer sector. However, from the recent data, the’ scissors difference’ between PPI and CPI is expanding, and there is an unsynchronized 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 year-on-year increase of food prices with higher weight in CPI dropped significantly, especially the price of pork dropped significantly, which led to the negative growth of CPI at present.

Wen Bin believes that in the next stage, the trend of CPI 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. Since March last year, China’s PPI has dropped significantly, and it is expected that commodity prices and cardinal utility will continue to push the PPI up.

What is the impact of the expansion of "scissors difference"

Wang Jun, chief economist of Zhongyuan Bank and member of the Academic Committee of China Center for International Economic Exchanges, believes that the main reason for the widening scissors gap is the uneven economic recovery. The acceleration of PPI is influenced by many factors. From the domestic factors, the steady economic recovery, especially the resilience of real estate investment, has driven the price of upstream raw materials to rise; From the perspective of international factors, economic recovery and inflation expectations are rising, and global re-inflation transactions are heating up. The prices of bulk commodities, such as crude oil and non-ferrous metals, continued to rise, which not only expanded China’s external demand through import channels, but also enhanced the enthusiasm of domestic commodity markets to do more through financial channels, which jointly promoted the imported price increase.

"CPI’s year-on-year increase shows signs of gradual stabilization at the bottom, but the overall situation does not have the basis for a sharp and rapid increase. 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’, and this basic pattern will be strengthened in the first half of the year. " Wang Jun said, however, judging from the upstream and downstream transmission mechanisms and their respective influence mechanisms, the inflationary pressure is relatively limited in the short term and throughout the year, so there is no need to worry too much about the risk of inflation.

What impact will PPI have on economic operation if it deviates from CPI? Wen Bin believes that the widening "scissors gap" reflects that the foundation of the current social aggregate demand recovery is still not stable. In the case of fierce competition in downstream industries, the price increase of upstream raw materials is difficult to be transmitted by price, which may lead to the "scissors difference" between PPI and CPI, and the "knife edge" may be expanded, which will bring certain difficulties and pressures to the operation of downstream production enterprises. Therefore, it is imperative to maintain the stability and continuity of policies and focus on stabilizing and expanding aggregate demand.

Prices will remain moderate throughout the year.

For the annual price trend, Guo Liyan, director of the Institute of Market and Price of China Macroeconomic Research Institute, believes that in the later period, CPI is expected to return to the moderate growth range, showing a trend of "low before and then stable" during the year, with a slight increase throughout the year; The year-on-year increase of PPI may continue to expand, reaching a relatively high point in the middle of the year. However, the domestic industrial production capacity and supply are sufficient, the market circulation is smooth, and there will be no sustained sharp increase. It is expected that the year will show a trend of "low at both ends and high in the middle", which is generally in a reasonable range.

Tang Jianwei believes that although CPI is at a low level, the new price increase factor has increased significantly since the beginning of the year, indicating that demand is improving. The economic recovery is superimposed with the hikes, and the CPI will rise to a positive value year-on-year, and the PPI increase will be further expanded. Overall, prices will run at a moderate level this year.

Although China’s annual price trend is expected to be moderate, experts also remind that the expansion of the "scissors difference" between CPI and PPI means that the economic recovery of various domestic departments is out of sync and the global economic recovery is out of sync. "The deviation between 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 imported risks of inflation this year, and avoid the increasing 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-policies, and it is necessary to balance short-term fluctuations and long-term development with cross-cycle regulation to solve structural and long-term problems in the process of economic development.

Wen Bin believes that it is still too early for the Fed to tighten monetary policy by raising interest rates, but if the economy recovers strongly in the second half of the year and inflation remains high, it will not be ruled out that the tightening effect will be achieved by reducing the scale of bond purchases, which will cause violent 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 for new shocks. (Reporter Xiong Li)