20171017-兴业证券-Comments_on_China_s_September_inflation_metrics_How_long_will_the__High_PPI_and_Low_CPI__continue__4页_1mb

Summary of China Macro Analysis: "How long will the 'High PPI and Low CPI' continue?"

Core Content

This report analyzes China's September inflation data, focusing on the "High PPI and Low CPI" phenomenon. It discusses the underlying factors influencing the price trends and provides insights into the future trajectory of inflation, particularly in the context of PPI (Producer Price Index) and CPI (Consumer Price Index) dynamics.

Key Findings

PPI Growth Remains Strong

• PPI rose 6.9% YoY and 1.0% MoM in September, reaching a new annual high.
• The 1.0% MoM increase was higher than market expectations, indicating continued upward pressure on production costs.
• The mining industry saw the strongest growth at 2.0% MoM, followed by raw materials at 1.90% MoM and processing industry at 1.0% MoM.
• Consumer goods showed a minimal increase of 0.1% MoM, showing a weak conduction from PPI to CPI.
• Environmental protection policies are believed to have a hysteresis effect, similar to supply-side reforms, and are contributing to PPI growth. However, the conduction speed from PPI to CPI is still slow, and PPI growth may slow in the coming months if production capacity restrictions are not tightened further.

CPI Growth Remains Low, but with Diverging Trends

• CPI rose 1.6% YoY and 0.5% MoM in September, continuing the "high PPI, low CPI" pattern.
• Core CPI (excluding food and energy) saw a stronger increase, driven mainly by the healthcare sector.
• The healthcare sector experienced 1.8% YoY growth and 7.6% MoM growth, the fastest since 1997.
• Medical services have outpaced drug prices, reflecting the ongoing medical reform that aims to reduce hospital profits by curbing drug sales.
• Despite the strong performance of healthcare, food prices fell more than expected, due to a late Mid-Autumn Festival, which reduced demand for seasonal goods like pork and vegetables.

Outlook on CPI Trends

• Non-food sectors are expected to continue driving CPI growth, especially in 2018.
• Pork prices are unlikely to cause a significant CPI spike in the short term, as the "hot-season" of swine has not yet started.
• Vegetable prices also showed weaker-than-seasonal growth in September, but this may become a positive support for CPI in the coming year due to low bases.
• Inflation pressure is expected to intensify in late 2017 due to potential price increases in crude oil, rent, and vegetables.

Investment Rating Framework

Industry Investment Rating

• Overweight: Industry performs better than the whole market.
• Neutral: Industry performs about the same as the whole market.
• Underweight: Industry performs worse than the whole market.

Company Investment Rating

• Buy: Stock price markup more than 15% better than the market.
• Outperform: Stock price markup between 5% and 15% better than the market.
• Neutral: Stock price markup less than 5% better or worse than the market.
• Underperform: Stock price markup more than 5% worse than the market.

Key Figures and Tables

Estimated Weight of CPI Components (2014–2017)

Figures

• Fig 2: The severe-than-seasonal drop in food prices was offset by a stronger-than-expected rise in non-food sectors.
• Fig 3: Pork and vegetable prices did not reach the seasonal level due to the late Mid-Autumn Festival.
• Fig 4: Fodder output diverges from the number of swine stock.
• Fig 5: The medical sector shows an upward trend, while its subsectors (medical service and drugs) show diverging movements.
• Fig 6: The conduction from PPI to CPI remains slow.

Disclaimer and Information Disclosure

• The report is based on public information, and the authenticity, accuracy, or completeness of such information is not guaranteed.
• The report is intended for Company clients only.
• The views expressed in this report are subject to change, and the Company has no obligation to update or revise the report.
• The Company may have conflicts of interest, and the report is not intended to be the sole basis for investment decisions.
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