Monetary factors will lead to a rapid rise in the CPI slow down trend

⊙ Western Securities Research and Development center Liu Yanji January CPI data showed a slight decline, but this does not deny the fact that the CPI continued to rise, the reason for the fall is because the weather factors over the December data. From the monetary factor and cost factors, we judge that the first half of the monetary factor on the CPI is mainly to promote the role of the rise, and in the short term will promote the rapid rise in CPI. With the continued implementation of monetary tightening, the second half of the monetary factor on the role of CPI in the first half will tend to weaken, but PPI on the cost of CPI will continue to push.　　Comprehensive consideration, we think CPI short-term will rise rapidly, the second half of a small fall. First, the monetary factor is the CPI important leading indicators of the impact of monetary factors on the CPI is mainly concerned about two factors, one factor is the super loose monetary policy that began in November 2008, the second factor is the gradual transition from the ultra loose monetary policy in July 2009 to moderately easy monetary policy. These two factors from the year-on-year growth of M2 can be clearly seen, monetary growth will eventually be expressed through the CPI. By observing the trend between M2, M1 and CPI, we can find that M1 and CPI have better synchronization. The logic behind this is that monetary expansion is M2 driven M1, and M1 represents the activity of economic transactions, CPI is in the course of economic transactions is gradually pushed higher.　　Before the activity of the economic transaction reaches a certain degree, the monetary expansion is more represented by the increase of asset price, and the currency trading on CPI is obviously insufficient. As a result of the ultra loose monetary policy, M2 growth rose from 14.8% in November 2008 to 28.46% in June 2009, and the shift from a looser to a moderately loose M2 in the ensuing November 2009 from 29.74%. At present M2 year-on-year growth rate of 25.98%, although still in high, but gradually drop the trend will continue.　　M1 's growth began to rise rapidly from the 2009 lows of January to 6.68%, now reaching a 38.96%-point high. The impact of monetary factors on future CPI can be summed up, M1 rapid rise will drive CPI into the fast-rising stage, and M2 and the gradual tightening of the monetary level of the trend to judge, is expected to M1 rapid rise is unlikely to last long.　　That is to say, the CPI is entering a fast-rising phase, but this phase will be short-term in terms of monetary considerations, estimated to be about 3-4 months. Second, global inventory replenishment to make PPI rise with certainty from a complete CPI inflation cycle to consider, CPI early rise is generally driven by demand. As the CPI rose to a certain extent, the impetus for CPI inflation gradually shifted from the demand factor to the cost-driven aspect, that is, PPI's rise as a cost factor will eventually push the CPI rise. At present, China's CPI has been in the PPI led to the rise of CPI, January 2010 PPI has surpassed the CPI andPresent a rapid upward trend. The increase of PPI and the global economy overall correlation is bigger. At present, the United States as the representative of the developed Countries inventory recovery is in progress, but the spontaneous inventory recovery (inventory level reached the historical average before the inventory back to the stage) has been carried to the second half, inventory back to the economic pull role tends to weaken.　　In this sense, the PPI rally is certain, but the PPI rally will tend to weaken in the second half. Third, under the background of structural adjustment, the resistance of PPI to CPI is weakening. The logic that the excess capacity restricts the PPI to the CPI is based on the restriction of the market structure on the price rise, and under the background of structural adjustment, the resistance of PPI to CPI transmission tends to weaken. This is because structural adjustment makes some excess capacity become ineffective, especially the structural adjustment of terminal demand. In addition, overcapacity on the CPI constraints mainly concentrated in the first half of the CPI rise, in fact, the rise in the CPI itself shows that the momentum has exceeded the constraints of overcapacity. In other words, China's overcapacity is part of the industry overcapacity, the impact on the overall CPI certainly exists, but it is not a fundamental factor restricting the rise in CPI. (Edit Yao)