The release of February CPI (Consumer Price Index) and PPI (Producer Price Index) data has sparked industry discussions on whether we are facing inflation or deflation. But whether it's inflation or deflation, it may not be good news for retail enterprises. According to data from the National Bureau of Statistics, February CPI rose 1.0% year-on-year, with the growth rate falling 1.1 percentage points from the previous month, and a month-on-month decline of 0.5%; PPI fell 1.4% year-on-year, and was flat month-on-month. Li Zongguang, chief economist at China Renaissance, believes that the current risk of deflation is far higher than that of inflation. As early as last December, China Renaissance had mentioned in "In the Short to Medium Term, the Risk of Deflation Will Be Higher" that due to sustained challenges in economic recovery, insufficient aggregate demand is the main contradiction in short-term economic work, and the risk of deflation is higher than that of inflation. Li Zongguang believes that once deflation expectations form, their harm is greater than inflation. "Once self-fulfilling expectations form, breaking them will cost several times more. So far, worldwide, there are not a few examples of failure to cure deflation." At the same time, Li Zongguang warned, "Under deflation expectations and insufficient social confidence, we face risks such as credit collapse and Japanification, which should be highly valued." The three years of the pandemic have caused profound and structural damage to social confidence and expectations, which will not naturally end with the end of the pandemic. He called for the timely introduction of a package of measures to expand aggregate demand and restart economic growth. A research report from Minsheng Securities also emphasized that the repair of consumer demand after the pandemic is not achieved overnight. "The 'deflation' in February CPI has three reasons: the impact of the Chinese New Year misalignment, differences in the pace of short-term supply-demand repair, and residents' income expectations that need further consolidation." In the report, Minsheng Securities stated that, referring to overseas post-pandemic experience, the subsequent momentum of consumption is closely related to residents' employment and wage expectations, which depends on whether there is a relatively stable growth momentum at the macro level. Perhaps the performance of the real estate sector in 2023 depends on how strong the consumption momentum is. Minsheng Securities believes that whether 2023 will see deflation or inflation depends on whether the real estate market can stabilize, and more importantly, the extent of its rebound. "The stabilization of the housing market is of great significance in avoiding the risk of China's economy sliding into substantial deflation later, which also means that housing price indicators may provide a strong reference for observing the sustainability of subsequent consumption." Of course, there are also different views. Wen Bin, chief economist at China Minsheng Bank, said in a media interview that China's current inflationary pressure is relatively mild, and it is unlikely to enter a deflationary range. The current price level will not constrain macro policy, and policies to expand domestic demand and promote consumption are still expected to continue. Another view is that many people worry about domestic inflation this year, but China is actually in deflation, with only structural inflation in areas such as food and energy. In fact, a wave of price increases has already begun in the food sector. On January 29, some distributors said that according to the "Notice on Price Adjustment for Distributors' Terminal Prices" from China Resources C'estbon, C'estbon purified water would increase by one yuan per case starting from March 1, 2023. Pocari Sweat, a representative brand of electrolyte drinks, recently announced that it would adjust prices in stages starting from April 1. Among them, the 500ml product will see its first increase in 23 years since 2000, with an increase of about 0.5 yuan per bottle. In addition, Junyao's "Wei Dong Li" and Wahaha's eight-treasure porridge series have also fully increased prices. Junyao Health announced on February 12 that it would adjust the ex-factory prices of some products under the "Wei Dong Li" brand, with an increase of about 3% to 6%, effective from March 1, 2023. The reason for the price increase is the continuous rise in costs of main raw materials, transportation, packaging materials, and auxiliary materials. From February, Wahaha's classic 360 eight-treasure porridge series and 280 eight-treasure porridge series products have fully increased prices, with an increase of 2 yuan per box. Of course, this round of price increases cannot be simply understood as the arrival of inflation, but it cannot be ruled out that such price increases may occur in other industries. Inflation is a process, referring to the sustained rise in the price level. If price increases also continue in other areas, the risk of inflation will further increase. At the same time, the market also has certain expectations for relatively loose monetary policy and proactive fiscal policy. In this round of price increases in some food products, internally, price increases can bring corresponding profits to companies; externally, the increase in costs gives companies with the confidence and strength to adjust prices a better development trend. In fact, affected by overseas inflation, China's deep dependence on imports of resources such as grain and energy makes imported inflationary pressure difficult to avoid. At the same time, coupled with the depreciation of the RMB, ordinary people actually feel a significant increase in the cost of living, and the burden of life has increased. The reason is that ordinary people's income has not increased. In the past three years, due to domestic pandemic control and economic recession, most residents' income has decreased significantly, leading to insufficient demand, and domestic deflation has emerged. Enterprises have to reduce production scale to rebalance supply and demand. Even though China's broad money M2 balance in 2022 was 266 trillion yuan, an increase of 28.14 trillion yuan from 238.29 trillion yuan in 2021, an increase of 11.85%. But did this 28 trillion yuan bring new vitality to China's economy? Last year, China's economic aggregate increased by only 6 trillion yuan year-on-year. Investing 28 trillion yuan only resulted in a splash of 6 trillion yuan. But in 2022, there was no obvious inflation, with annual inflation of only 2%. This January's CPI was 2.1%, which seems not high, but in real life, people have found that prices have quietly risen. For excessive money issuance to cause inflation, the over-issued money needs to enter market circulation. But in reality, the over-issued money was allocated to the fiscal system, directly controlled by the government, and used for coordinated anti-epidemic and other activities. Local governments are heavily in debt, and the central bank prints money to support the government's borrowing to maintain operations. Even if there is indeed liquidity injection domestically, it is swallowed by the ever-increasing debt and does not enter the circulation market. In the future, it cannot be ruled out that this trend will continue. "Whether it is inflation or deflation, it is unfavorable to the retail industry," Bai Wenxi, chief economist at IPG China, told "Ling Shou". Bai Wenxi believes that in the case of inflation, it manifests as widespread and significant increases in commodity prices. Under the expectation of currency depreciation, it may trigger panic buying, overdraw purchasing power, and then cause significant market fluctuations. "If it is deflation, commodity prices fall across the board, causing consumption contraction, leading to reduced profit margins for retail enterprises, which in turn leads to insufficient production enthusiasm and also promotes a decline in the performance of consumption and retail enterprises. In 2023, Chinese retail enterprises face a macro environment of declining economic expectations and sluggish consumption. In this situation, retail enterprises cannot increase sales, but total costs, including rent and labor, are rising. To maintain normal operations, retail enterprises must maintain a certain performance growth rate to survive sustainably. "This is the biggest pressure currently facing Chinese retail enterprises," Bai Wenxi said. More critically, affected by the pandemic, online business has squeezed and replaced offline business very strongly in recent years, and consumers have formed certain online consumption habits. Moreover, online retail has certain competitiveness in terms of price and convenience; the share of physical commerce is gradually being squeezed and diverted by online retail, and gross profit margins are severely compressed. "In such a situation, how to maintain survival and achieve corporate performance growth are major challenges." Tian Jianzhong, chairman of Green City Supermarket, told "Ling Shou", "Recently, I communicated with several entrepreneurs, and the problems they face are almost the same: store sales have declined to varying degrees, and bosses are worried about the future." He believes that in 2023, the biggest problem facing the retail industry is the sluggish market and weak sales growth. There are three main reasons for insufficient market consumption capacity: First, at the macro level, due to factors such as international geopolitics, economic cycles, and the three-year pandemic, the macro economy has been severely hit. Although pandemic controls have been fully lifted, apart from the rapid recovery of the cultural tourism industry, other industries have not yet shown signs of recovery. Second, residents' income growth is slow, and consumer confidence is insufficient. Third, various specialty stores, discount stores, and online channels are diverting traffic, with increasing impact on physical stores. Tian Jianzhong said that measures should be taken to respond. First, bosses should stick to their beliefs and build confidence. When problems arise at the macro level, especially when performance declines seriously, some corporate leaders will panic and seek help everywhere, making blind adjustments to the enterprise, often with half the result and double the effort. "As the top leader of an enterprise, don't be intimidated by current difficulties. As long as consumers exist, demand exists. There is no off-season market, only negative thinking," Tian Jianzhong said. "Learn to find a blue ocean in the red ocean. Calmly analyze what problems your enterprise faces. Is refined management solid? Including product strength and operational capability. Does your digital capability match? How much space is there for supply chain construction? How is the online channel capability?" Second, times are changing, consumers are changing, and consumer consumption patterns are also changing. Changing according to customers is not a slogan but a topic that future retail enterprises must truly study. Starting from store atmosphere, product mix, marketing methods, and sales methods, create greater value for customers. That is, change from promotion to marketing, and provide consumers with more valuable goods and services. Third, strengthen the construction of enterprise digital capabilities. The appearance of enterprise competition is price, but the essence is operating costs. Digital construction, organizational construction, and process reengineering are necessary ways to gain cost advantages. "Whether enterprises embrace the internet is not a question of whether, but how to do it better. Marketing methods and online-offline integration are inevitable choices for the future. Whether building self-owned channels or cooperating with third parties, according to their own enterprise situation, they must do it well. This is a major trend, and we should follow it," Tian Jianzhong said. More critically, China's current economic development still faces challenges. Internally, consumption is sluggish, and ordinary people's income has not increased; externally, foreign trade is not optimistic. To put it more bluntly, in the past, many countries led by the United States provided China with a market. Now this market is shrinking or significantly reducing in scale, and demand is gradually disappearing, or other countries are gradually replacing China. China's goods have nowhere to sell, and the economy cannot rise. This leads to a consequence: many goods are produced, but they cannot be sold, so prices have to be reduced. But price reduction is not a good thing. If all goods are reducing prices, people's lives will not be good either, because wages will not rise either. It is like endless involution. Naturally, retail enterprises will not have good performance either. Even if China's economy is recovering, it still takes time. For retail enterprises, while actively embracing change, it might be better to be cautious.