Research On The Influence Of International Oil Price Fluctuations On Inflation In China

As the major strategic material and chemical material, oil has an important influence in national economic development of a country. In recent years, with the rapid development of China economy and the constantly accelerating of industrialization, the demand for oil increases growingly, while the domestic oil production lags far behind, so resulting in a gap between its supply and demand has expanded year-by-year, the demand for foreign dependency has increased, and the influence of substantial fluctuations of international oil price on China macroeconomic becomes more and more obvious. How to understand this influence comprehensively and systematically, which has great significance for stabilizing domestic prices, avoiding the risk of oil imports and establishing China's energy strategy.To solve this problem, we can find that international oil price fluctuations and inflation may be closely related to each other after a comparative analysis of them, the continued rise in oil price will lead to cost-push inflation. Based on a massive literature research, through theoretical analysis, we find out the transmission mechanism from international oil price fluctuations to the effects of inflation. Then, using relevant data about them to do statistical analysis of their association, and researching on the impact of domestic related industry based on the analysis of the specific pathway which the international oil price affects the inflation in China. Finally, by establishing co-integration model and vector error correction model, we analysis the long-term balance and short-term fluctuation between them. Co-integration test shows that international oil price and China's inflation rate are in a long-term balance and the international oil price has big influence on inflation. Through the vector error correction model, we know the error correction term has a reverse correction mechanism for the rate of inflation when the short-term fluctuations deviate from the long-term equilibrium, but this mechanism does not work on international oil price, and in the short term, the inflation rate will be subjected to lag one month and two months'positive role from international oil price. Granger causality tests show that international oil price is the unidirectional granger causality of our inflation rate, which shows further more that international oil price have an impact on inflation in China. Moreover, we make the imitable analysis for international oil price having an impact on inflation in China, so we can test the model that has stronger stability, and this model can make explanation and analysis for inflation's change. With the consideration of China's actual situation and the conclusions of qualitative analysis and quantitative analysis, giving the relating policy suggestions to respond to international oil price fluctuations at the end of this paper.