An Analysis Of The Effects Of Circulation Cost On Inflation In China

The circulation of commodity is important to connect production and consumption.Modern circulation industry plays a great role in improving the efficiency and quality ofeconomy. Recently, the costs of goods in China start to transfer from production area tocirculation area. Circulation cost has accounted for50%to70%in commodity price,becoming an important reason causing inflation. Rising rents, procurement costs,warehousing costs and selling costs attached in circulation cost have jointly pushed upprice and increased living cost.More attention is focused on demand factors when study the causes of inflation,ignoring the rising supply costs. From the perspective of circulation cost, this paperanalyzes the effects of both the cost factors and demand factors on inflation. The costfactors are represented by logistics costs and retail costs, while the demand factors arerepresented by inflation expectations and money supply. Specifically, we choose road andbridge tolls revenue of highway listed companies to denote logistics costs, and theoperating costs of retail listed company to denote retail costs. In addition, we select thepanel SVAR model with interactive effects for empirical analysis. Sample interval of thispaper is from the fourth quarter of2003to the second quarter of2013, and cross sectionindividuals include Beijing, Jiangsu, Anhui, Fujian, Shandong, Hubei, Hunan, Guangdong,Hainan and Chongqing. With three endogenous variables (logistics costs, retail costs,inflation) and one common factor (money supply), we finally build panel SVAR modelwith interactive effects in this paper.The results of empirical analysis show that inflation in China is the joint outcome ofdemand factors and cost factors. Of which, the contribution rate of demand factors is ashigh as85%. However, that does not indicate the rising circulation cost is not importantfor inflation. When monetary conditions remain unchanged, the average contribution rateof cost factor to inflation has reached25%; when taken monetary factors intoconsideration, the average contribution rate has reached15%. What’s more, this paperonly takes parts of circulation costs into consideration, so the total cost effects must behigher than15%. Therefore, circulation cost has become an important factor to causeinflation in China.