The Effects Of Oil Price Changes On China's Inflation

As the basis energy and chemical material, oil is said to be the blood of modern industry economy. Since being affected by many factors, Oil price usually changes intensively. Several big oil crises in the history make people realize that the continued rise in oil price will course cost push inflation, slow the economic growth even bring recession. The rapid increases of oil price since 2003 has been associated with the worldwide inflation. With the rapid growth of the national economy, the gap between domestic oil demand and supply is increasing year by year; the foreign dependency rate of oil is higher and higher, these will definitely mean that any normal or abnormal fluctuation of oil price will exert a rather profound influence on domestic inflation. There is a contradiction between market demand and non-market supply in our oil market. Therefore, research on the effects of oil price changes on China's inflation under this special market system is meaningful. It will have important reference for authorities to judge the inflation risk, conduct appropriate policy to accommodate the shocks, mitigate the inflation risk and avoid a hard landing of the economy.Firstly, this article analyzes the transmission mechanism of the oil price changes on inflation from macroeconomic perspective and price economic perspective. Furthermore, detailed analyzes varies factors in the transmission stage in China. It suggests that the effect is mainly on the first two stages. Then the article chooses three representative price indexes to quantitatively analyze how is the oil price changes be transmitted from production area to consumption area. The findings suggest that there is a significant effect in the production area but a muted effect in the consumption area. After that, this article computes the theoretical effects of oil price changes on other national economic sectors and general price level by adopting the input-output price model. The result shows that oil processing industry; chemical related industry, high energy consumption industry and transportation industry suffer more influence. PPI and CPI will increase by 4.56% and 3.03% given that oil price increase by 100%. On the basis of above analysis, the author put forward some suggestions against international oil price changes.