Analysis of the causes of inflation in China and countermeasures》

Analysis of the causes of inflation in China

and countermeasures

Abstract: In recent times, our country has been increasing pressure on

inflation has become a universal concern a major problem. This article analyzes the characteristics, as well as our country's current inflation from excessive foreign exchange reserves, oil prices and increases in the price of food, housing prices rose, and other factors to produce an analysis of the reasons for my inflation; it was also explained that the impact of inflation on the socio-economic.At the same time made some corresponding governance measures and so on and so forth.

Key word: inflation , Excess liquidity, inhabitant income

1. The mean of Inflation

Inflation is a continuous increase in the price and the process is also tantamount to a monetary value of the continuous devaluation process. It's characterized by sustained overall price and generally rose, and the price level is generally with the national consumer price level Index CPI to describe. In a mature market economies, the rate of inflation at a rate of 3 %, defined below 3 percent is the \"moderate inflation, and more than 3 per cent\" is a macro-economic overheating the signal. In January 2007, the country's CPI index for December was 2.20 % and 2.70 % respectively, 3.30 % and 3.00 % and 3.40 % and 4.40 % and 5.60 % and 6.50 % and 6.20 % and 6.50 % and 6.90 % and 6.5 %. Starting in March 2007 CPI more than 3% throughout the year, consumer prices rose 4.8 % higher than that of the previous year, an increase of 100 3.3 points. Although monetary financial sector conducted several macro-control, but CPI remains high. Therefore, it can be said that the rising CPI has enabled our country has inflation.

2. the status quo of China's inflation

Since early 2007, the consumer price index continued to rise, increasing inflationary pressures increase, the consumer price index in

January rose more than year 2006, the year 1.5%, the vast majority of the beginning of the month also exceeded the government work report to determine the Looking at the 3% target each month or year the chain's consumer price index, inflation in China in 2007 the trend has accelerated noticeably.

In 2008, [1] statistics: Since May of this year, China's CPI has continued to decline year on year increase. With a peak of 8.5% in April compared with May, June, July CPI rose 7.7%, respectively, 7.1% and 6.3%, month by month there has been a significant decline. The inflation presents the following characteristics: current inflation has obvious structural features; current inflation presents non-equilibrium characteristics; residents' belief in a high inflation inconsistent.

3.The impact of inflation on the socio-economic 3.1 The impact of inflation on economic growth

Promote the theory: view that inflation can promote economic growth through government borrowing from the central bank to expand financial investment, and to take measures to ensure private sector investment is not reduced, will be due to the increase in total investment to promote economic growth. In the case of inflation, rising prices in general is always faster than the speed of nominal wage increase speed, so corporate profits will increase, will encourage enterprises to expand investment and promote economic growth. Inflation is a climate conducive to affluent income redistribution, the marginal propensity to save affluent is relatively high, so inflation will increase the savings rate by promoting economic growth.

Promote back theory: that the negative correlation between inflation and economic growth, not only does not promote economic growth, but also damage economic development. Longer-term inflation will increase the risk of productive investment and operating costs, leading to decline in productive investment. Inflation will reduce the investment cost, induce excessive investment demand, forcing financial institutions to strengthen credit quotas, reducing the efficiency of the financial system. Persistent inflation may eventually force the Government to adopt a

comprehensive price control measures to reduce competition and economic vitality.

Neutrality theory: Thought the people anticipated finally meet neutral it to the inflation to economical each kind of effect, the positive and negative effect can counterbalance mutually.

3.2 The impact of inflation on employment

Inflation and unemployment in the short term there are alternating relationships, and in the long run, inflation has no effect on unemployment. Phillips curve was reflected this shift the relationship between inflation and unemployment of a curve.

3.3 Impact of inflation on the redistribution of income and wealth

Loss of fixed income, floating income received; benefit the debtor, the creditor losses; real wealth holders benefit, monetary wealth holders damaged; country has been, impaired residents

4 .The inflation produces reason

4.1 Foreign exchange reserves is too big, so that money supply increases

Since China adopted the mandatory exchange settlement system, all foreign exchange must be acquired by the central bank, and in order to purchase foreign currency, central banks must issue an additional base money. Net foreign exchange reserves in China in 2007 reached 15,282.49 million. Too large and foreign exchange reserves, China's foreign trade surplus, foreign investment and the yuan's appreciation has a direct relationship. According to China Customs 11 January 2008 released the 2007 China's foreign trade import and export data, China's foreign trade surplus reached a record high $ 262.2 billion, compared with $ 177.47 billion in 2006, an increase of 47.7%, highest in the world. In addition, the international balance of payments situation, our long-term performance and capital projects for the current \"double surplus.\" First half of 2007, China's current account surplus of 1629 billion U.S. dollars,

an increase of 78%; capital and financial account surplus of $ 90.2 billion, an increase of 1.3 times. Current and capital account surplus led to huge foreign exchange reserves has increased substantially.

4.2 International crude oil prices, rising costs lead to a range of products

According to statistics, China's crude oil production in 2007 increased

by 1.6 percent to 1.8665 million tons. Meanwhile, the General Administration of Customs January 11, 2008 announced that the year 2007 China imported 163 million tons of crude oil, up 12.4 percent over the previous year; year 2007, imports of refined oil 3,380 tons, down 7.1% over the previous year. In 2007 the average price of international crude oil is 73 U.S. dollars / barrel. January 2, 2008, international crude oil futures topped $ 100 a barrel mark. Global oil demand to increase economic growth, political, natural and other factors have led to uncertain oil supply, coupled with a variety of investment funds and other speculators raise prices, since 2005, international oil prices continue to climb. As the price of oil futures prices rose mostly, so its impact will be mainly behind the next two years show. For our specific case, by the obvious effect of oil prices. First of all, China is a major importer of oil in 2007, annual imports of 163 million tons of crude oil; Second, China's current international oil price changes for the lack of voice, can only passively accept international oil prices; third, as a the basis of energy, oil involves a long chain, which will bring the whole industry chain in the form of the rise in the price level of society, resulting in cost-push inflation.

4.3 Rising food prices is to promote the CPI climbed the main motive force

In 2007, food prices rose 12.3%, pulling the overall price level rose 4%; in food prices of food rose 6.3%, up 31.7% meat and its products, and eggs rose 21.8%. Remaining commodity prices rise and fall. Food prices continue to act as the main force of the present CPI accelerated. As far as meat, poultry, and pork prices rose this year there are three major reasons, one is the rise in food prices in particular, corn prices lead pig feed price increases. Second, low pork prices hit the farmer's pig-raising

initiative last year. Three are southern high fevers and blue ear disease outbreaks result in reduced supply of live pigs. Food terms, from the international aspect, growth in demand for food rose mainly because normal growth in demand for food is not the main reason, make biofuel demand \"rise\" is the main reason, and was used for human consumption of grain to make fuel, mainly in order to meet the car, especially Western countries (especially the United States) car-hungry appetites. Domestic point of view, is advancing the cause of China's urbanization and cultivated land are decreasing continuously peasants ' enthusiasm for producing grain is not high, thus inhibiting the supply of food. At the same time, as the urban low income groups and gradually raising the level of rural residents income, growth in China's grain demand is rigid. Behind the food prices are increasing peasants, city-financed rural areas, and industry-financed agriculture requirements. Since 2007, rural residents consumer price inflation continued higher than urban residents. As a low-end consumer, urban middle-income groups and farmers income increase will increase its consumption such as food, meat, poultry, eggs, which will be on the rise in prices of agricultural products such as grain, meat, poultry and egg a continuing role in pulling.

4.4 High housing prices rise is to promote an important reason for rising CPI

2007 housing prices rose 4.5%, driving the overall price level rose by 0.6 percentage points. Year in 70 cities housing sales price rose 7.6% over the previous year, or increase of 2.1 percentage points. Although high prices do not directly enter the statistics cpi, but the rapid rise in housing prices by affecting the cpi housing prices, rising cpi also had a certain role At the same time, because these years along with our country urbanization advancement quickening, the massive populations enter a city the housing, the employment, as well as the general inhabitants improve the housing conditions the desire further to strengthen, thus causes the real estate market the demand to strengthen gradually.On the other hand, because the real estate supplies structure is unreasonable, not only satisfies the mid and low earning social stratum housing requirement the household and the low-grade housing insufficient supply, moreover

because the recent years each place economy was suitable the room scale to receive the extrusion unceasingly, was suitable the room also insufficient supply as the housing safeguard economy.Adds on the urban center construction to use day by day scarce, the society anticipating which rises continually to the real estate price short-term as well as wells up like the real estate industry massive capital congenial activity and so on to cause the real estate the price constant rise.

4.5 inhabitant income increases, expends is steady and rising, the demand is strengthening to the CPI pull force

In 2007 the cities inhabitant average per person may control receives 13786 Yuan, grew 17.2% compared to the last year, deducted the price factor, grew actually 12.2%, sped up 1.8 percentage points.The countryside inhabitant average per person net income 4140 Yuan, grew 15.4% compared to the last year, deducted the price factor, grew actually 9.5%, sped up 2.1 percentage points.

Moreover, considered in recent years the institution institution raises the wages large scale, the enterprise profit increases urges the employer and the staff receives the growth to speed up, property rises in price and so on real estate bring the wealth effect, in 2007 the demand draws the CPI rise the pressure, must compared to previous two year big somewhat.

5. Inflation countermeasure and solution measure

5.1 Using the exchange rate, interest rate, and reserve rate of integrated policy

The exchange rate, the interest rate and the reserve fund rate all is the central bank in order to control the contraction money market measure which the inflation adopts.Uses involves the exchange rate, the interest rate, the reserve fund rate “the three arrows shot together” comprehensive policy, may the great scope suppression expense grow, the control price excessively quickly growth, achieves the control inflation the goal.

From March 18, 2007 to December 21, 2007, the central bank already was continual 6 times surrenders to the state the bank datum interest rate.A year time deposit datum interest rate from 2.52% enhances to

4.14%, a year time loan datum interest rate from 6.12% enhances to 7.47%.From January 15, 2007 to December 25, 2007, the central bank already was continual 10 upward bank reserve against deposits rate, sometimes was 0.5%, sometimes was 1%, from 9% surrendered to the state to 14.5%.Gets up from May 21, 2007, between the bank the spot exchange market Ren men bi exchanges US dollar transaction price fluctuation scope from original 3 ‰ to expand to 5 ‰.

5.2 In order to adjust the tax rates and reduce government bonds to the behavior of key measures sound financial policy

The tax revenue system supplies are one of macroscopic economical regulation methods which the country grasps.The tax revenue regulation can play the automatic stabler regarding the currency demand and the artificial stabler role.The release national debt is for the balance country financial revenue, the atonement financial deficit and the country for the collection construction fund and so on, the improvement tax system and the release national debt was still at present quite feasible counter-inflation policy tool.In order to suppress the current inflation, on the one hand, must adjust the tax rate.If on March 1, 2008 gets up, our country tax beginning levying roll-call from present 1600 Yuan/Month upward to 2000 Yuan/Month; August 15, after 2007, the interest tax suitable tax rate from original 20% scales down to 5% and so on.On the other hand, reduces the national debt the quantity issued.The concrete quantity issued formulation needs to consider domain and so on financial deficit degree and in founding of the nation debt goal call for fund as well as to agriculture, social security, education and public health regular investments and so on.

5.3 Enlarge country price control

In 2007 the CPI rise quite is quick, the country adopts the finance and the monetary policy have the hysteresis quality, its effect needs period of time to be able to demonstrate, therefore has the essential enlarge country price control. On the one hand carries on the price control to be possible to regulate the price directly, on the other hand may the standard including inflate prices, harass the market the behavior. If on January 15,

2008 the national development changed the member of a revolutionary committee to announce \"about Implements Temporary Price Intervention Measure to Part Staple commodity And Service Implementation Meanshis start temporary price intervention measure mainly was raises the price reported and adjusted prices sets up a file. However, the price control is only a short-time control price rise behavior, from looked for a long time, this way cannot fundamentally solve the problem.

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