CPI and interest rate hikes: The prophet’s Waterloo
From pork to eggs, from vegetables to fruits, from cooking oil to petroleum… Witnessing the Consumer Price Index (CPI) rising from 2.2% at the beginning of the year to 6.9% in November, all predictions Everyone was shocked.
Due to the low base last year, forecasters reached a consensus that the price level this year will be higher than last year, but obviously the magnitude of CPI exceeded everyone’s expectations.
None of the financial institutions’ expectations for CPI growth this year at the beginning of the year exceeded 3%. Although the central bank’s monetary policy implementation report for the fourth quarter of last year still raised upward pressure on the currency, its expected CPI target for this year was only 3%.
Judging from the actual situation, the monthly year-on-year increase in CPI remained below 3% only in January and February. It jumped to more than 3% starting in March, and exceeded 4% and 5% in June and July. %, reaching a new high of 6.5% in August, falling slightly in September and then rising to 6.5% in October. In November, it even reached a record high of 6.9%, a ten-year high.
Due to the underestimation of CPI, various institutions’ forecasts of the number of interest rate hikes by the central bank are also much lower than the actual situation.
CPI growth exceeded expectations
In this round of “unexpected” rises in prices, the rise in pork prices was seen as an unexpected “trigger”, and its rise almost continued throughout the year. Year.
The rise in pork prices actually started at the beginning of the year, but it was only in May that it began to attract widespread attention.
According to data from the National Bureau of Statistics, the year-on-year increase in the price of meat, poultry and its products in the first four months rose from 13.5% to 17.6%, and rose sharply to 26.5% in May. The month-on-month growth rate in each month was more than 35%, and it reached nearly 50% in August. Among them, pork prices have risen most rapidly, with an average monthly increase of more than 55%.
Reduced supply is the direct cause of rising pork prices.
Price increases have also spread to other commodities. Manufacturers of edible oil, milk, and instant noodles have adjusted prices one after another. The rise in the prices of liquefied gas and refined oil has spread the pressure of price increases beyond food.
In addition to being affected by the supply and demand situation in the domestic market, external factors are also considered to be a major factor causing domestic inflation.
The international crude oil futures price currently remains above US$90/barrel. The surge in international crude oil prices has further intensified the distortion of domestic refined oil prices. The National Development and Reform Commission announced adjustments to domestic refined oil prices starting from November 1. In addition, the rise in the prices of corn, soybeans and other grains in the international market this year has also had a transmission effect on the rise in domestic grain prices.
Some analysts pointed out that as a monetary phenomenon, prices obviously cannot escape the pressure caused by excess liquidity. Some analysts believe that the rise in M2 (broad money) has a 12-month lag effect on CPI. Then, the price rise that started in the second half of the year may be the result of the high growth of M2 from October 2005 to August last year. During this period, the year-on-year growth rate of M2 has been maintained at around 18%, reaching a high of 19.1% in May last year.
The Central Economic Work Conference proposed “preventing structural price increases from evolving into significant inflation” and proposed the implementation of tight monetary policy.
Raise interest rates to fight inflation
The unexpected growth of CPI has made the central bank’s interest rate hike policy exceed the expectations of most institutions.
Since the rise in CPI has been underestimated, various institutions have mostly judged the number of interest rate hikes this year to be one or two. The central bank actually raised interest rates a total of 6 times this year, including once in March and five times from May to December. The concentrated period was in the third quarter, with the central bank raising interest rates once in July, August and September respectively. The third quarter was a period of rapid CPI growth. It is not difficult to see that as inflationary pressure increases, the frequency of interest rate hikes by the central bank has significantly accelerated.
In every interest rate hike announcement, the central bank has stated its intention to maintain the stability of the overall price level and adjust and stabilize inflation expectations, reflecting the pertinence of interest rate hikes to inflation. Although the Federal Reserve’s consecutive interest rate cuts have put pressure on my country’s decision to raise interest rates, the consideration of the interest rate gap between China and the United States has now been placed on the back burner.
On the one hand, inflation has a direct impact on residents’ lives. On the other hand, increased inflationary pressure has made the real interest rate very low or even negative, and the cost of capital is too low, which will further aggravate the situation of excess liquidity.
Although the central bank has raised interest rates six times in a row, the actual interest rate level has been in a state of negative interest rates because the CPI has increased more than the rate hike. Taking the one-year deposit interest rate as an example, the nominal interest rate at the beginning of the year was 2.52%, which was only 2% after deducting the 20% interest tax. After six consecutive interest rate increases and the interest tax cut to 5%, the one-year deposit interest rate reached 3.93% at the end of the year. However, the full-year CPI is expected to exceed 4.6%, and the negative real interest rate has not changed.
This year, the return effect of the stock market has been obvious. The stock market has seen a huge diversion from bank deposits. Residents’ savings deposits have shown an obvious trend of becoming current, and have not increased but declined for several consecutive months. Relevant people from the central bank have repeatedly stated this year that they hope that real interest rates will be positive and will try to avoid long-term negative interest rates.
At present, the central bank still has some room to raise interest rates next year, and the number of interest rate hikes will depend on the future.��’s inflation situation.
Inflation expectations are currently easing. Most people believe that the CPI will gradually fall from this year’s high point. However, due to the influence of the base, the CPI may still remain at a high level in the first half of next year, and it is more likely to fall back in the second half of next year. Shenyin Wanguo Research Institute believes that the CPI will be around 4% next year, and the central bank will raise interest rates once or twice. Wang Zhihao, senior economist at Standard Chartered Bank, raised his CPI forecast for next year to 5% and believed that the central bank will raise interest rates four times.
Analysts also pointed out that the asymmetric interest rate hikes adopted by the central bank many times this year are expected to be maintained. On the one hand, the interest rate spread between deposits and loans will continue to narrow; on the other hand, the central bank may focus more on short-term interest rate adjustments to strengthen liquidity controlAAFGNHIYIYO
Disclaimer:
Disclaimer: Some of the texts, pictures, audios, and videos of some articles published on this site are from the Internet and do not represent the views of this site. The copyrights belong to the original authors. If you find that the information reproduced on this website infringes upon your rights, please contact us and we will change or delete it as soon as possible.
AA
