October Inflation Data Review: CPI Jumped On Schedule, Non Food Price Inflation Fell Across The Board

CICC macro

In October, CPI rose from 3% in September to 3.8%, significantly higher than the market forecast of 3.4%, but in line with our expected [1]. Our accurate judgement of CPI is based on our close tracking of high-frequency price data, and on the other hand, our understanding of the weight changes and impacts of CPI. According to the current price trend, CPI will probably fall to [2] in the 4.2%-4.5% range in November. In October, the core CPI grew by 1.5% last month. CPI growth rate was flat at 0.9% in September. CPI data show that food prices continue to rise, not food prices are weakening.

Food prices continue to rise. In October, the CPI food price year-on-year growth rate increased from 11.2% in September to 15.5%, an increase of 3.6% in September (3.5% in September). In terms of pork prices, the year-on-year growth rate of pork rose from 69.3% last month to 101.3%, affecting CPI's rise of about 2.43 percentage points. On the other hand, the growth rate of fresh fruit prices rose from 7.7% last month to -0.3%, while fresh vegetable prices grew at a low level of -10.2%, compared with -11.8% in September.

Non food prices have weakened further. In October, the non food price year-on-year growth rate dropped from 1% in September to 0.9%. The monthly growth rate was unchanged from 0.2% in September. According to the classification, the price of consumer goods and service prices in October were 1.4% and 0% respectively.

In October, the PPI growth rate decreased from -1.2% in September to -1.6%, slightly below the market expected -1.5%. In October, the PPI growth rate was flat at 0.1% in September. Raw materials PPI rose 0.2%, compared to 0.5% in September; mining industry PPI month was flat, compared with September was flat; at the same time, the processing industry PPI month was flat, compared with September flat. In terms of sectors, oil and natural gas extraction prices rose 0.8% in the month, down 2.4% in September. The prices of the middle and lower reaches of the industry are rising and falling month by month. Specifically, the price of farm and sideline food processing industry increased by 1.8% on a month to month basis, while the price of chemical fiber manufacturing and textile industry decreased by 1.1% and 0.4% respectively on a month to month basis.

Although the trend of growth and non food inflation momentum highlights the necessity of counter cyclical adjustment of monetary policy, under the current situation, CPI still has further upward pressure, which may cause some disturbance to monetary expectations in the short term. In October, CPI jumped sharply, but the core inflation indicators such as core CPI and PPI continued unchanged or weakened further. In the environment of weak aggregate demand, the "spillover effect" of pig prices to other consumer categories is low, and may even squeeze out the purchasing power of other consumer categories. Looking forward, CPI may break the possibility of "4" in November, while PPI may recover slightly under the low base effect, but the probability will remain in the negative range. In the current economic situation, although the underlying economic data show that monetary policy needs to be further relaxed, the upward trend in prices over expectations may lead to difficult monetary policy to pass a clear easing signal. On the other hand, from a medium-term perspective, the profit of pig farming has reached an unprecedented level. In theory, the increase in pig prices and the time of CPI inflation should not be too long. We expect that CPI will soon come down in the second half of next year. Under the pressure of PPI and the downward pressure on corporate earnings, although the pace of monetary policy adjustment may lag behind, monetary policy will also focus on adjusting the fundamentals of the economy.