The Origins Of China's Inflation

Inflation's origins are those macroeconomic factors which induce inflation. Inflation's origin is a significant problem in the area of macroeconomic research. There are many related researches in China, but this problem has not been well solved. In recently years the macro-control force of Chinese central bank is much stronger than before, but there are still some problems. As a result, it is endowed with important theoretical and practical meaning to study Inflation's origins of China.Inflation has a certain effect on national efficiency of resource allocation and the fairness of income distribution. A domestic scholar considered that China must keep fully alert for chronic and durative of inflation, and that inhibiting inflation is the first aim of Chinese macroeconomic policy. Therefore this article's objective is to find out macroeconomic factors which have induced effect to inflation of China, to analyze how to govern and prevent inflation by controlling these factors, and to make policies inhibiting inflation.The research methods of this article, based on summarizing former researches, include making using of classic macro-economics theory to deduce which macroeconomic factors have induced effect to inflation of China, applying empirical research methods to test whether they are Inflation's origins and building regression model to gain their induced coefficient to inflation by Chinese data 1985-2006. This article chooses indicators as induced indicator of China's inflation, which can accurately measure and represent the origins of China's Inflation, and gains main research results as below:First, it can be known from the results of Granger Cause test that, the origins of China's Inflation include fast growth of economic, money supply increasing, changing of velocity of money circulating, assets prices fluctuating, capital international flowing and cost pushing. Their nine indicators are the indexes of these macroeconomic variables as below: GDP growth, money supply M₂, money in circulation M₀, velocity of money supply M₂'s circulating, commercial residential building average sale price(BP), circulated stock market total value(SV), FDI, Funds outstanding for foreign exchange divided by M₂ (FM₂), and raw material and energy price(RE).Second, it can be known from the results of OLS that, the induced effects of original indicators of China's Inflation size down as below: public expect to inflation, M₀, RE, FM₂.Third, according to the analysis of empirical results, inflation targeting system should be implemented by China. At the mean time central bank should pay highly attention to cash flow M₀ as the intermediate target for macro-control. Government should also intensify farm products purchasing and energy industries' supervisions.In the long run the increasing of demand which induces money supply going up is the origin of inflation, while in the short run stock of supply and importing factors also induce inflation. In recent years, national academic circles have some researches on origins of inflation of China, but most of them focus on only one or few origins and their indicators. This article induces the origins of China's inflation by qualitative analysis and quantitative study, picks up corresponding induced indicators, tests whether these indicators have deduced effect on inflation, analyzes their induced coefficient on inflation and raises reasonable policy suggestion.