CPI with moderate ending in 2016 & future monetary policy or to suppress bubbles

In 2016， the CPI and PPI are respectively fixed at 2% and-1.4%， out of the concerned stagflation at the beginning of year 2016. Its widely expected that PPI in 2017 will continue to rise， but the high tide will not last for a long time； meanwhile， CPI will maintain a moderate rally， and the overall inflationary pressures wont be too great.

Central Economic Working Conference indicates that the monetary policy should maintain stable and neutral this year. Analysts believed that the focus of the policy is to suppress asset bubbles and prevent financial risks in this year， and a relatively tight policy environment can inhibit inflation in a certain extent， so there is no need to take additional monetary tightening measures similar with rising interest rates.

According to National Bureau of Statistics， in December last year， CPI rose by 2.1%， down by 0.2 percentage point from the previous month， which realized the growth of CPI maintaining more than 2% for three consecutive months.

Throughout the year， CPI rose by 2%， an increase of 0.6 percentage point form a year earlier， while it was far lower than the inflation control target of 3% made by government last year.

The market seems to be worried about Chinas inflation of this year， due to the pick up of global inflation and continuous rebound of commodity prices.

Liu Xuezhi， senior researcher of BOCOM financial research center， indicates that CPI is expected to rise modestly to the peak in the middle of this year， during which CPI growth may exceed 3% for few months， and the whole year trend is impacted by the seasonal trend of food price. He believes that CPI growth would be higher than the year of 2016， but not more than 3%.

Since last year， commodity prices continued to rise， and also led to a rebound in PPI， which achieved positive growth in September. National Bureau of Statistics released that in December， PPI rose 5.5%， up 2.2 percentage points from the previous month， hitting a new high of more than five years. It was the fourth consecutive month of positive growth in PPI.

There are two reasons for the rising of PPI， one is that affected by many factors such as exchange rate fluctuations， the imported commodity prices rise， pushing up prices of some industrial products； the other is that industrial production and market demand stability increase， the effects of destocking is significant， as well as the relationship between supply and demand is gradually improved.

Data showed that in 2016， PPI fell 1.4%， a decline of 3.8 percentage points from a year earlier. PPI is expected to achieve positive growth in 2017.

Liu Xuezhi says that after the tightening of housing policy and shock of bond market， there are some idle funds into the field of industrial and consumer goods， pushing up the relative prices. It is expected that PPI will reach the peak in the first quarter of this year， with the growth up to around 5.5%.

However， he thinks that the macro economy will be slow in stabilization， economic situation is difficult to support the significant rise of price， and the conduction of PPI to CPI is weakened， so the overall inflation pressure will not too large.

For future policy direction， Zhang Jun， chief economist of Morgan Stanley Huaxin Securities， puts forward that its not a worry about inflation， and the monetary policy turns to“neutral”， to prevent asset price bubbles and reduce financial risks， as well as the financial deleveraging will objectively tighten monetary environment， to inhibit inflation in a certain extent， so there is no need to take extra monetary tightening measures.