The Research Of The Correlation Between Inflation And The Changes In The Wage In China

The research of the inflation is always the important field in the economic, while the crucial problem in this field is how the variation of aggregate demand and the production costs effect the inflation. The inflation of China is a complex issue, it can not be explained by a single factor or the traditional theories, The researches present in China included a variety of different aspects, These studies included prices of agricultural products and resources of the basis of product prices, the external input, the economic cycle, fixed assets investment, food consumption, money supply, output gap, real estate prices, exchange rates etc, however, there were few researches on the relevance between average wage and the inflation with the time series methods, this article expected looking into the inflation of China in a different aspect by studying the relevance between average wage and the inflation.The first chapter of this article introduced the general theories of inflation, including the causes of inflation and the influence of the inflation to the whole economic, and the background and significance of the study on present inflation of China. There are two opinions about the inflation at present; some scholars consider the inflation as a inflation of Cost-push, while the others consider the inflation as a Demand-pull. Facing inflation of different types, the government need taking different macro-control measures, facing the inflation of Demand-pull the government should take tightening macroeconomic policy; however, in the case of Cost-push inflation tightening macroeconomic policy may lead to lacking of effective supply. The opinion of the government about the type of the inflation directly affects the measures to take, and the results of taking different measures must be different at all. Wage Cost-push inflation is the inflation due to the increasing of wage exceeds the increasing of productivity, as the increasing of wage exceeds the increasing of productivity, the cost of the commodity production increase at the same time, thus, the price level would rise.While base on the other inflation theory, moderate inflation would increase the production, the increasing of the production could bring the growth in the national income, so there will be a growth in the wage at the same time. People are all familiar with the inflations theories; we would like to know more about that: Was the inflation in China at present really be a factor of increasing in income? Or was the inflation at present a typical Cost-push inflation due to the fast increasing of wage?Chapter 2 introduced the inflations after reform and opening with the study about China's inflation. Most researches on the relevance between average wage and the inflation in China at present were mainly studying in qualitative analysis, they proved high correlation between average wage and the inflation in theory without data supporting. Most studies on the relevance between wage and the inflation with the time series methods were taking the annual data of the years after reform and opening for studying the influence of average wage or excess wage to the inflation. After 2007, the CPI of China had risen for a long time, It becomes a research focus in 2008 that if the inflation was the type of Cost-push, Yang Chun Lei holds that the increasing of average wage would lead to rising of price level after his empirical analysis on the average wage and inflation annual data from 1991 to 2006, moreover, the average wage's affect to inflation weakened after enhanced; Fan Zhi Yong holds that from 2000 to 2000 there were no"Wage - inflation"circle mechanism after his empirical analysis on the excess wage and inflation quarterly data from 2000 to 2007.Chapter 3, empirical analyzing on the average wage of urban residents and urban CPI monthly data of 2007 and 2008 by establishing VAR model, Granger causality test and Impulse response function shows that the increasing of the urban residents'average wage was the Granger causality of the rising of urban CPI, and urban CPI was not the Granger causality of the urban residents'average wage. This illustrated that the inflation was a typical Cost-push inflation; the inflation's effect on the income was not significant. The result of Impulse response function shows that the increasing of average wage would lead to declining of the CPI in short term, and the rising of the CPI in long term; The rising of CPI would lead to increasing of average wage in short term, and have no affect in long term.The Chapter 4 shows the significance to the macroeconomic policies of China and the policy recommendations. The test results'significance to the macroeconomic policies of China reflected in the prevention of Cost-push inflation, income distribution reform, stimulating domestic demand and the prevention of deflation at present, and make recommendations as follow:(1)The emphasis in the prevention of Cost-push inflation is that the government should prevent the rising of price level in monopoly industries and essential industries; they are the emphasis in price regulation.(2)For preventing the Cost-push inflation, the government should measure the price of labor reliably; prevent the non-rational increasing of wage.(3)In the process of deepening the income reform the government must regulation of the high-incomes while improving the low-incomes, or the inflation caused by the increasing of average wage would weaken the reform's effect.(4)The government should pay attention to differential treatment in the process of stimulating domestic demand by increasing wage, focus on improving the low-incomes. At present the government should find ways to cultivating consumer hotspots, speed up the development of the tertiary industry and deepen the reform of the social security system for stimulating domestic demand.(5)Strictly enforce Contract Law at present could reduce the pressure of deflation, be good for socio-economic stability.We can see that China is in the process of the primary stage of socialism, current policy, laws and regulations are not satisfactory, the lagged behind the market-oriented economic reform is difficult to adapt to the rapid increase in the current level of demand, consequently, keep on deepening reform, Speeding up the process of the rule of law, reasonably perfecting system are necessary for developing of our economic.