The Relationship Between Agricultural Product Price Fluctuation And Inflation In China

Controlling inflation is one of the main targets in the policy making of macroeconomic. InChina, agricultural product price has always been the main concern of controlling inflation.However, the influence extent of agricultural product price fluctuation to inflation depends on theproportion of agriculture in national economy, the proportion of light industrial product andconsumption structure, etc. Before the reform and opening up, agriculture is the main part ofnational economy, the light industrial product has a high incident in national economy, the incomeof resident households is mostly spent in food consumption, so the agricultural product pricefluctuation can significantly influence inflation. Since the reform and opening up, with the rapiddevelopment of economy, the industrial structure has been promoted, the consumption structurehas been improved, the opening degree has been raised, the influence extent of agricultural productfluctuation to inflation changes, the measure of controlling inflation needs adjusted accordingly.This paper focuses on the relationship between agricultural product price fluctuation andinflation in China. Under the guidance of objective reality and theoretical framework concerningthe relationship between agricultural product price fluctuation and inflation in China, by clarifyingthe theoretical connotation and formation mechanism of agricultural product price and inflation,the study reveals the interaction mechanism between the agricultural product price fluctuation andinflation in closed economy and open economy. Then it designs a empirical mould revealing therelationship between agricultural product price fluctuation and inflation, and selects the relevantindexes and data from1980to2011. The paper makes an analysis about the causality and theinfluence degree of agricultural product price fluctuation to inflation in different period by VARand OLS methods. The results indicate that: firstly, during1980-2001, agricultural product pricehas no Granger causality relationship with inflation, while they have a remarkable Grangercausality relationship during2002-2011; secondly, according to the VAR analysis about therelationship between agricultural product price and inflation during2002-2011, the results indicatethat agricultural product price and inflation have a positive correlation in long term, and inflation significantly influences agricultural product price fluctuation in short term, but agricultural productprice fluctuation makes a small influence in inflation in short term, and influence expectation is themain influence element, and industrial product price and monetary supply is also important, but theinfluence about agricultural product price fluctuation, output gap and change of exchange rate toinflation is weak; thirdly, with the gradual improvement of agricultural product price system, theagricultural product price fluctuation just has a small influence to inflation. According to thetheoretical analysis and empirical results, the paper advances some policy proposals to themanagement of inflation and agricultural product price.