The Research Of Potential Inflationary Pressures In China

Since1997, China's economy gradually transformed from a balanced mannerunder the constraint of a shortage of economic resources to a balanced manner underthe economy constraints of excess demand. In this context, China has shown a signifi-cant lack of effective demand problem. The overall inflation rate has dropped, butthere is more and more monetary precipitate, the M2/GDP has risen quickly, but agri-cultural prices have been stepped rising in recent years.“Chinese monetary puz-zle”phenomenon and structural inflation phenomenon also led to widespread concernsabout the potential inflationary pressures through demand level and supply level.The U.S. financial crisis and the outbreak of the European sovereign debt crisissince2009, adversely affected the global economy including China,. To deal with thecrisis, China adopted a package of economic stimulus measures including a proactivefiscal policy and moderately loose monetary policy, and achieved remarkable results,quickly reversing the slowdown in economic growth momentum in the first quarter of2009; successfully weathered the most direct challenges of the financial crisis. How-ever, the negative impact of policies has emerged. To support the rapid economic de-velopment, the loose monetary policy has led to the rapid growth of the money supply.Excessive growth of broad money once again lead to inflation expectations in the fu-ture that we are very concerned about.In this economic context, we are about to answer two questions of China's infla-tion: First, in such a high money supply growth environment, why there are no suchinflation? Monetary phenomenon lost again in China? Whether such a high stock ofmoney will cause potential inflationary pressures in future? Second, there is a strongkinetic energy of agricultural prices rising, but why often appear rose and fell?Whether it will result in high inflation in future? This article is trying to research thepotential inflationary pressures in China since1997in this economic background.This paper is divided into five parts in general.The first part includes first, second and third chapter. In the first part, from thetwo Chinese contradictory phenomenon of inflation in recent years,we first puts for-ward the problem of this article to study, defines the meaning of potential inflationarypressures;Secondly, the existing information on potential currency inflation causes ofinflation pressure and literature were combing the fullest, focusing on the potentialinflationary pressures summed up the mystery of the lost money under the differentinterpretations of the causes of inflation, research status, research methods and thecause of the problem; first chapter is the introduction of this paper, in this chapter, weanalyze the background of inflation in recent years, and the questions of this study, aswell as the significance of the issue, content, ideas and methods, research programs and innovations. The second chapter reviews and combed the research literature ofexplaining Chinese monetary puzzle, potential inflationary pressures and the causes ofinflation in China, summed up the further research literature content. The third chap-ter describes the phenomenon of inflation in China since the reform and opening up,and analyzes the economic background when potential inflationary pressures accumu-lated.The second part is divided into chapter four and five, the key point of this part isto research and analysis the potential inflationary pressures at the demand level andthe supply level respectively, as well as to, estimate the future potential inflationarypressure situation. On the one hand, in this part we have studied the inflationary pres-sures at demand level from the perspective of insufficient effective which has ans-wered the mystery of China's currency lost; then constructed monetary potentialenergy concept from the perspective of empirical,and predicted the potential inflatio-nary pressure at the demand level for China's future. On the other hand, we have stu-died the structural inflation characteristics of China's inflation by a theoretical model,then have analyzed the gap between the theoretical value and the actual value of thestructural inflation over the years, found the existence of the underpricing of agricul-tural products, and analyze the reasons which caused agricultural underpricing andthe potential inflationary pressures is caused.The third part includes chapters VI, in which we have mainly studied the causesof inflation recent years in China from the perspective of the causes decomposition.First we build the quantitative models to quantify the causes of inflation decomposi-tion,,and make a empirical research of the32CPI components by using statisticalfactor analysis method; decomposition the indicators of the degree of inflation fromboth the demand and the supply level. Then we study the results of the formation de-composition of inflation, and laid a theoretical foundation for the later study of thepotential inflationary pressures both at the demand and supply level.Part IV includes the seventh, eighth chapters, in this part we has mainly studiedthe conditions and controllability of the release of the potential inflationary pressure.Chapter VII has firstly summarized the situation of the potential inflationary pressuresat the demand and supply levels; then by studying the release conditions of potentialinflationary pressures at the demand level., we considered the main reason whichcaused the potential inflationary pressures is insufficient effective demand, while themain reasons which caused the lack of effective demand are the income gap and theimperfect social security system. So the narrowness of income gap and the further im-provement of the social security system may lead to the inflation. The release condi-tions of potential inflationary pressures at supply level are the further development ofagricultural economy and the proceeding agricultural industrialization. These condi- tions also illustrate the inevitability of the potential inflationary pressure release. Weuse the P-Star approach to predict and study the future inflation in China.With that inChapter VIII we have studied the controllability of the release of the potential infla-tionary pressure through theoretical modeling and data modeling, we have tested theinflationary pressures on the Chinese families; and do actual research and summaryon inflation affordability of Chinese families through questionnaire survey method.The fifth part includes Chapter IX. This part has reviewed the content and theconclusions of the study, and it also has offered the policy proposals that to deal withthe pressures of potential inflationary, as well as the future direction for further re-search.The main conclusions of this paper are:First, the main causes of inflation of our country is monetary, credit expansion atthe demand level, while the positive effects on economy of the inflation on the supplylevel surpass the negative effects. The causes of inflation in China differs during dif-ferent periods,. Before2003, the demand level is actually in a state of deflation, whilethe structural inflation at the supply level is higher, which has played a positive effectfor ease deflation, rationalize the price system, promote coordinated economic andsustainable development. But since2007, the obviously, even serious inflation oc-curred are caused mainly by the monetary, credit factors at the demand level.Second, the potential inflationary pressures at the demand level are great. Thisstudy found that will have a significant impact on inflation within next four years. Thesituation of China's depositing money is very serious, thus the release of the demandlevel pressure is likely give rise to a relatively high rate of inflation in the future.Third, the potential inflationary pressure at supply level is great as well. Thestudy found that due to the small-scale peasant production, farmer's lack of marketdominant position, and pricing power. And the price of Agricultural production hasoften been artificially lowered, which results in a serious agricultural production un-derpricing phenomenon. Since the price of agricultural production in China has beenobviously depressed, it should rise by20%on the basis of2012.Fourth, the release conditions of the potential inflationary pressures are very like-ly to occur in the future both at the demand and supply level.. Once the consumer de-mand is improving, or domestic demand is expanding and the development of modernagricultural economy, will lead to the release of potential inflationary pressures. Andall of the three are the inevitable trend of China's future economic development.Therefore, regardless of the demand level or supply level, the release of potential in-flationary pressures is an inevitable phenomenon.Fifth, through the questionnaire survey which is about the inflationary pressuretesting and inflationary affordability of Chinese families, the study found that the maximum inflation that Chinese families could withstand is below5%.