Analyze the current price trend with a comprehensive dialectical long-term perspective

　　The report on the implementation of monetary policy in China in the first quarter of 2023 issued by the People’s Bank of China said that there is no deflation in China’s economy at present, and there is no basis for long-term deflation or inflation in the medium and long term.

　　According to data recently released by the National Bureau of Statistics, in April 2023, the national consumer price (CPI) rose by 0.1% year-on-year and decreased by 0.1% quarter-on-quarter; The national producer price (PPI) decreased by 3.6% year-on-year and 0.5% quarter-on-quarter. The year-on-year increase of CPI continued to fall, hitting a new low in April since March 2021. How to treat the current domestic price situation correctly? What will be the next price trend?

　　Affected by many factors, prices are falling.

　　Careful consumers will find that with the blooming of spring, vegetables and fruits on the market are not only more abundant, but also more and more "close to the people", and the latest statistics also reflect this change. In April, a large number of fresh vegetables and fresh fruits were put on the market, and the prices dropped by 6.1% and 0.7% respectively. The production capacity of live pigs is sufficient, and the price of pork decreased by 3.8% due to the influence of off-season consumption.

　　Dong Lijuan, chief statistician of the Urban Department of the National Bureau of Statistics, said that in April, the market supply was generally sufficient, and consumer demand gradually recovered. The core CPI excluding food and energy prices changed from flat last month to 0.1%, up 0.7% year-on-year, and the increase was the same as last month.

　　Dong Lijuan analyzed that from the ring comparison, in April, the travel demand increased during the small holiday, and the transportation rental fees, air tickets, hotel accommodation and tourism prices all rose, with the increase rate ranging from 4.6% to 8.1%; Affected by the fluctuation of international crude oil prices, domestic gasoline and diesel prices both fell by 1.7%; Merchants cut prices to promote sales, and the prices of fuel cars, new energy cars and household appliances dropped by 1%, 0.9% and 0.6% respectively.

　　Zhang Xuewu, director of the Analysis and Forecast Division of the Price Monitoring Center of the National Development and Reform Commission, said that fresh vegetables, gasoline and diesel, and fuel cars together affected the CPI by about 0.9 percentage points, which was the main reason for the low CPI operation. In April, PPI decreased by 0.5% month-on-month and 3.6% year-on-year. Zhang Xuewu believes that due to the international tension last year, the central banks of cardinal utility, the United States and Europe continued to raise interest rates, which led to the slowdown of economic growth and the financial risk spillover of some major developed economies. The international commodity price volatility was weak and had an import impact on China.

　　Xiong Yuan, chief economist of Guosheng Securities, believes that the recent decline in China’s prices is due to various factors such as the decline in pork prices, the slow recovery of service prices, and the weakening of commodity prices.

　　Zhang Xuewu said that the current downward trend of prices is mainly caused by the disturbance of high base, which is staged and temporary, and should be treated objectively and rationally and analyzed comprehensively and accurately. On the one hand, due to the influence of import, seasonal factors and high cardinal utility, the prices of some commodities have fallen more, which is the main reason for the current CPI decline; Affected by international geopolitics and other input factors, PPI has declined, but these factors are temporary. On the other hand, at present, China’s demand has recovered rapidly, and the overall economy has rebounded. In the first quarter, China’s GDP increased by 4.5%, and the growth rate was 1.6 percentage points faster than that in the fourth quarter of last year. This year’s "May 1" holiday tourism consumption recovery momentum is very strong.

　　China’s economy has not experienced deflation.

　　Prices are closely related to people’s lives. Low prices mean less living expenses, which can reduce the pressure of life. However, the relatively low price movement has also caused some people’s concern. Is deflation coming?

　　The report of the People’s Bank of China clearly indicates that there is no deflation in China’s economy at present. Deflation mainly refers to the continuous negative growth of prices and the downward trend of money supply, which is usually accompanied by economic recession. China’s prices are still rising moderately, especially the core CPI is stable at about 0.7% year-on-year, M2 and social finance are growing relatively fast, and the economic operation continues to improve, which is not in line with the characteristics of deflation. In the medium and long term, China’s total economic supply and demand are basically balanced, monetary conditions are reasonable and moderate, residents’ expectations are stable, and there is no basis for long-term deflation or inflation.

　　Wang Yuanhong, deputy director of the Economic Forecasting Department of the National Information Center, said that at present, the overall price level in China has not yet declined generally and continuously, so there has not been deflation.

　　Zhong Zhengsheng, chief economist of Ping An Securities, said that China’s GDP deflator rose in the first quarter compared with the fourth quarter of last year, which confirmed that deflation is a false proposition. The GDP deflator is not only a weighted average of CPI and PPI, but also a more comprehensive and comprehensive indicator. The highlight of China’s economy in the first quarter was the tertiary industry, which was fully reflected in the GDP deflator.

　　Wang Jinbin, deputy dean of the School of Economics of Renmin University of China, believes that China’s economic development situation determines that deflation is impossible. China’s economic output gap is narrowing, which determines that there will be no deflation. Estimates of China’s potential economic growth rate are mostly in the range of 5.0%~6.0%, while the GDP growth rate in the first quarter is 4.5%, and the output gap is converging. Although the PMI index was below the critical point of 50 in April, the production index was 50.2%, which continued to be above the critical point, indicating that manufacturing production maintained expansion.

　　Guan Tao, global chief economist of Bank of China Securities, said that at present, China’s CPI and core CPI inflation levels are low, but there has not been a continuous decline in the overall price level and the money supply, and there has not been a negative economic growth, which does not meet the definition of deflation. Low inflation is only because China’s economy is in a recovery period, and the anti-inflation force is strong, and the force to promote price recovery is gradually accumulating strength. Although the recent year-on-year decline in China’s PPI reflects the fall of commodity prices in cardinal utility and the world, it does not conform to the definition of deflation.

　　Moderate price level provides space for expanding demand.

　　How long will the current price decline last? What will be the trend of price operation throughout the year? How to expand domestic demand and stabilize growth in the next step?

　　The report of the People’s Bank of China predicts that CPI will fluctuate within a narrow range at a low level in the coming months due to the influence of a high base. From May to July this year, CPI will remain low in stages, mainly due to the high base of CPI increase of about 2.5% in the same period last year. With the reduction of the base, especially the policy effect, the gap between supply and demand is expected to close. It is expected that the CPI center may rise moderately in the second half of the year and may rise to near the average level in recent years at the end of the year.

　　Guo Liyan, director of the Comprehensive Situation Office of China Macroeconomic Research Institute, said that the analysis of prices should not only look at the "shape" of the month, but also comprehensively look at the "potential" of the quarter and the year. In April, the overall domestic price level was in a reasonable range, and the relatively low operation was only a seasonal and temporary phenomenon, not a trend feature. At present, China’s economy has a solid foundation of "stability" and a strong momentum of "progress". The endogenous kinetic energy is constantly increasing, and the supply and demand sides are recovering towards equilibrium. In particular, the consumption of contact services has rebounded significantly, which has led to an increase in employment and income, and the upward trend of the economy will gradually show up in prices. Looking forward to the whole year, the overall domestic price level will fluctuate slightly and moderately within a reasonable range.

　　According to Wang Yuanhong, after calculation, the low point of CPI and PPI increase in the year is in the second quarter. With the gradual recovery of the economy and the weakening of cardinal utility, the CPI and PPI increase will gradually increase in the third and fourth quarters, and the annual price may show a "V-shaped" trend.

　　Zhong Zhengsheng believes that the economic recovery is reflected in the price breakdown data, but the kinetic energy of household consumption growth needs to be further consolidated, and the current price level can create a better environment for further efforts to stabilize the growth policy.

　　Guan Tao believes that it is necessary to combine the implementation of the strategy of expanding domestic demand with deepening the supply-side structural reform, giving play to the effectiveness of policies and stimulating the vitality of business entities.

　　Wang Yuanhong suggested that in the next step, we should continue to implement a proactive fiscal policy and a prudent monetary policy, maintain macro-policy control, strengthen coordination and cooperation of various policies, and give priority to restoring and expanding consumption. Through government investment and policy incentives, we will effectively promote the investment of the whole society, give play to the supporting role of exports in the economy, and promote the overall improvement of economic operation.

　　Wang Jinbin said that the core of China’s high-quality economic development is innovation. A moderate price level can avoid excessive investment, and resources will be concentrated in long-term innovation areas. The moderate price level also provides space for the macro-policy of expanding demand. He suggested that a number of policies should be introduced to boost consumer confidence, focusing on supporting the consumption of end products with long industrial chains, and supporting local governments to introduce policies to expand household consumption and enhance residents’ sense of acquisition and happiness, so as to further consolidate the important role of consumption in steady growth. (China Development and Reform Newspaper reporter Tian Xinyuan)