Factors Affecting The CPI In The Long-run And Short-run: Test Based On China's Data

CPI is one of the key index of macro-economics, it is always concentrated by enterprise and government. For enterprise, CPI is the basis of increasing or decreasing the investment, for government, CPI is the basis of grasping resident consumption status, studying and working out salary and monetary policy. Since China's the reform and opening up, CPI has experienced its peak and also trough. When CPI is too high, people's cost of consumption is also increased, but when CPI is too low, it usually shows that the economics is experiencing depression, thus it is necessary to study the influencing factors of CPI.This paper is on the basis of quantity theory of money and AD-AS model. The selected variables are as follows:money supply, per capita disposable income of urban and rural households, total retail sales of social consumer goods, loans, financial expenditure, imports and exports, average money wages index, price index of agricultural means of production, PPI, price index of raw materials,fuel and power. The variables are divided into short term factors and long term factors. Money Supply is the only long term factor, the remaining are the short term factors. By positive analysis, we use co-integration and error correction model to test the impact of money supply to CPI, the result shows that there is long term equilibrium relationship between money supply and CPI. The factor analysis we extract demand factor,cost factor and investment factor and analyze the relationship between CPI and the highest loading factors through vector auto-regression model. The results show that it is the demand-side rather than supply-side that influences CPI most. Upstream price will eventually transfer to CPI although there is lags. Fixed assets investment has great effect on CPI. At last, the paper suggest that we should shrink the size of credit, raise interest rate and reserve ratio in view of the high inflation expectations. We also should intensify supervision especially investment on fix assets to prevent high housing price from leading other price to increase.