Analysis of the Causes of Inflation In fact, rising food prices are the direct cause of the recent rise in inflation. China's inflation level has continued to rise recently. According to relevant statistical data analysis, rising food prices are the main factor causing the rise in CPI. After excluding food factors, the growth rate of non-food CPI is within 2%. Therefore, the current inflation has structural characteristics. Within the scope of food, pork prices have risen most. The sharp increase in pork prices has triggered an increase in the prices of its substitutes such as beef, mutton, and poultry eggs, and further promoted price increases in the entire food industry. As the current round of food price rises shows obvious cost-push characteristics, the price index of agricultural production materials has increased significantly since mid-2006, especially pigs and corn. This has also directly led to the rapid rise in pig and corn prices. At the same time, food and grain prices show obvious cyclical characteristics. Although the price index of food, meat and poultry products has been rising recently, the grain price index has shown a downward trend. However, except for pigs and corn, the production costs of most agricultural products have not increased significantly. Therefore, under the background that the supply and demand of bulk food raw materials such as grain are basically balanced, we expect that food CPI will decline after December. On the other hand, from a deeper level, the two major driving factors of current inflation are the cost push caused by excess liquidity and economic structural imbalance. The former is an external factor that provides an environment for inflation to breed, while the latter is an internal factor that drives the inflation spiral and prolongs its duration. Excess liquidity will have an impact on both the real economy and the virtual economy, causing inflation, asset appreciation, or both, but the intensity is different. Therefore, inflation, like asset revaluation, is a phenomenon that will not go away as long as the underlying causes of its creation do not recede. Industry Analysis of Inflation and Price Increases In the case of inflation, generally speaking, industries that are likely to see price increases include: products in retail department stores, planting and breeding, food and beverages, and aviation and shipping industries; the financial industry and the real estate industry will also benefit from inflation. First, the retail industry benefits from moderate inflation, and continued growth in household consumption is conducive to increasing the income and profits of commercial enterprises. By industry segment, the moderate rise in prices is most beneficial to the department store industry. Because the domestic department store industry generally adopts the manufacturer joint venture model, the overall increase in prices has also brought about a moderate increase in the prices of "luxury goods" such as high-end clothing and cosmetics. This is reflected in the department store's finances, which means increased sales revenue and improved gross profits. Secondly, inflation has caused short-term cost increases in the food and beverage industry, but price increases and rising food prices make us believe that the long-term impact is positive. The food industries negatively affected by rising prices of grain, meat and poultry, from large to small, are slaughtering and meat product prices, dairy products, and beer. The industry competition pattern and profitability determine the process and extent of price increases. The dairy industry is highly concentrated and is highly likely to raise prices. Leading companies can basically fully absorb the pressure of rising costs. The beer industry is not highly concentrated and has weak ability to raise prices. From the perspective of the slaughtering industry, there is basically no resistance to price increases. However, due to insufficient supply of live pigs, reduced production capacity utilization, and increased fixed costs per unit product, gross profits have declined. The market concentration of meat products processing is relatively high, so it is relatively easy to raise prices. However, the extent of the price increase is far less than the rise in pig prices this year. It is a foregone conclusion that the gross profit margin of sales will decline this year. Third, international and domestic food prices mainly increased in July. At present, domestic grain prices are generally lower than international prices. Farmers are reluctant to sell during summer grain purchases, and the rise in grain prices is not over yet. Rising prices of agricultural products have led to continued improvement in agricultural production efficiency, with the prices of livestock products rising the most. The processing industry that uses agricultural products as raw materials has encountered cost pressure, and the overall gross profit margin level of the feed industry has declined in the first five months. In addition, the banking industry benefits from the expansion of interest spreads caused by inflation, and the insurance industry benefits from the rise in bond yields caused by inflation. The main driver of rising real estate prices is excess liquidity rather than inflation. When liquidity does not shrink, inflation and rising housing prices will continue. Moreover, actual negative interest rates reduce financial costs and enhance the demand for home buying. Ideas for stock selection under the background of inflation: One is that the profits of large-scale, capital-intensive companies with large sales will grow steadily, which will lead to further increases in their valuations. In fact, rising land prices increase RNAV valuations, while rising housing prices reduce PE and PEG valuations. Some first- and second-tier leading stocks and commercial real estate stocks, represented by Vanke, Poly Real Estate, and Huafa Holdings, are expected to stand out. The other is a company with large sales but relatively small market capitalization. In the context of inflation, huge sales scale and increased gross profit margin can make companies more profitable, so market value will grow faster, such as many listed home appliance companies or retail commercial companies. Finally, under the expected inflation situation, the agriculture and food and beverage industries may have better investment opportunities, and investors can pay attention to these two types of companies. The first is those with strong pricing power, including resource (product, brand) monopolies and industry leaders with high concentration, mainly including: Kweichow Moutai, Wuliangye, and Luzhou Laojiao in the high-end liquor industry; Hao Dajia in the marine aquaculture industry; and food companies. Angel Yeast, SDIC Zhonglu, Xinzhongji, etc. in the processing industry. The second is the leaders in industries with obvious price increase effects, mainly including: Tsingtao Beer and Yanjing Beer in the beer industry; Bright Dairy and Yili Co., Ltd. in the dairy industry; Shuanghui Development in the meat products industry and Tongwei Co., Ltd. in the feed industry.