The CPI data for September was released, showing a year-on-year increase of 0.4%. At the same time, the PPI decreased by 2.8% year-on-year and by 0.8% month-on-month. What do these two sets of data indicate? What impact will they have on the future economy? Or, what direct effect will they have on the opening of the large A-share market tomorrow?
Our current deflation cycle actually began after the pandemic. In February 2020, the national inflation rate was 5.2%. After the gradual lifting of pandemic restrictions, our inflation reached a short-term peak.
Subsequently, the CPI kept falling. The United States began to raise interest rates in March 2022, and our CPI then plummeted from a relatively moderate 2% to around 0 today, which means our economy is already under deflationary pressure.
Inflation is certainly frightening, but deflation is even more terrifying. Why did the Japanese economy fall into the "Lost 30 Years"? It's because of the issue of deflation. Today, Japan's GDP is not even as high as the data from 20 years ago. If you take into account the inflation of the US dollar, the Japanese economy can be said to have seriously declined.
Let's look at when our stock and real estate markets began to decline. The real estate market actually started to fall in 2020. Although the transaction volume of new houses was still as high as 18 trillion in 2021, it was already a spent force. By 2022, it directly fell to 13 trillion. The performance in the first half of this year was even worse.
Although the stock market soared in 2020 due to the large stimulus of the United States' money printing, it has been plummeting since then. After breaking through 3700 points, it began to decline, falling to more than 2600 points before the 924 new policy. Only by understanding the relationship between deflation and inflation can you understand the cycle of asset price increases and decreases.
Generally speaking, other countries raise interest rates to combat capital flight. However, raising interest rates will also hit the domestic economy, so China would rather bear the burden than raise interest rates. But our economy has already entered a deflationary cycle, our own small cycle, superimposed on the cycle of the US dollar's interest rate increase and capital inflow, which has made our deflation more severe.Now that the United States has lowered interest rates, it's as if the tight箍咒 that was binding us has been removed, and we can start to confidently lower interest rates and stimulate the economy. On September 24th, the country fired six arrows at once, lowering interest rates, reserve requirements, and the interest rates on existing mortgages. Yesterday, the Ministry of Finance even gave the economy a strong shot in the arm, making it very clear that the central government still has room to leverage, and fiscal stimulus will not stop.
It's worth noting that this massive liquidity injection is actually different from Japan's quantitative easing. What does this mean? Whether we issue national currency or lower interest rates and reserve requirements, we are trying to work with the existing money supply, rather than increasing the incremental money supply. This is because our M2 is already quite substantial, currently exceeding 300 trillion. However, our M1 is only around 60 trillion. Just the residents' deposits amount to 148 trillion.
These funds must be activated through our monetary and fiscal policies. So we don't have to worry that after this stimulus, our economy will shift from deflation to hyperinflation.
However, since the era of massive liquidity injection is coming, it indicates that our asset side needs to be revalued, naturally, water rises ship high. Many investment logics will change. For example, our major A-shares, our real estate market, these are all directly affected.
Don't worry too much about short-term fluctuations, as long as you understand the overall trend. If you hold good chips in your hand, there's no need to worry about fluctuations over a few days. The CPI in September still hasn't improved, which further indicates that the stimulus policies to come will only be more, not less. Yesterday's finance father meeting actually left a lot of room for imagination, many stimulus policies did not give specific numbers, which means that the future operational space is actually very flexible.
But you should know that the leverage ratio of the Chinese central government is only over 20%, and you will know how much room there is for fiscal policy alone. In fact, the stock market is no longer the best time to get on board. Relatively speaking, the real estate market, which has been neglected by everyone, may have more opportunities.