Just after the Spring Festival, many companies have not fully resumed work, but they have received news about the price increase of various raw materials. It is estimated that the price of lithium batteries will increase by 20%, the price increase of copper foil has exceeded 30%, and the price of electronic components has increased and out of stock, the price of hardware will increase, and the price of plastic parts will also increase.
   

  The price increase of a variety of raw materials has affected almost all industrial sectors, which means that the price increase of raw materials may lead to an overall increase in the price of all manufactured products, which in turn triggers a significant price increase.

Why will there be a significant increase in raw material prices after the Spring Festival?

1. Production and supply-side factors.
  

  The global raw material production capacity has declined due to the epidemic, and prices have risen due to the impact of supply and demand. The increase in the price of raw materials caused by this reason is temporary. As the temperature rises, and the production of raw materials for vaccine inoculation in a large area will gradually resume, the price will gradually drop.

2.Money supply side factors.
  

  In 2020, in response to the epidemic, governments of various countries have implemented quantitative easing policies, and the currency is oversupply. This will inevitably lead to a greater supply of money than demand, leading to currency depreciation and rising prices. If this is the reason for the increase in raw materials, the situation is worse. The stimulus of the economy through loose monetary policy will lead to a serious lag in price increases. It will take about one to one and a half years to show up, but it usually takes three to four years, or even It will take longer to fully digest this adverse effect.

Aggressive monetary and fiscal policies usually have the following side effects:

1. push up the price of various factors of production, and then pull up the overall price, so that the currency devaluation.

2. Leading to further inequality in income distribution and further widening of the gap between the rich and the poor, making the poor even less able to consume, thus further shrinking the overall consumption power of the whole society.

3.The combination of the above two reasons has led to a decline in corporate profits and insufficient output, which has caused companies to reduce investment, lower output, and lower social output. The superimposition of rising prices and lower output of the whole society is commonly referred to as stagflation.

Which indexes are worth watching?

At the stage when prices are just beginning to rise, I think the following indexes are worth paying attention to:
1. Ex-factory price index of industrial producers.
2. Manufacturing Purchasing Managers Index.
3.The total retail sales of social consumer goods.
4.Consumer Price Index (CPI).

  The ex-factory price index of industrial producers in the above indicators looks simple and clear. If it rises, it will inevitably lead to a subsequent rise in the consumer price index. The rise of 1 and the relationship between 2 and 3 are more complicated, but if inflation is deducted, I think they should be negatively correlated. In other words, if the ex-factory price index of industrial producers rises significantly in February and March, then the total retail sales of consumer goods for the whole year should decrease, leading to a decrease in the manufacturing purchasing manager index.