1. Causes and Countermeasures of my country’s Inflation

Due to various reasons, inflation is quietly coming to our country. In order to avoid abnormal development of our country’s economy, we must adopt adjustments to income policies and monetary policies. Policies, foreign economic policies, raising interest rates, lowering wage levels and adjusting industrial structure to curb the spread of inflation and enable the stable development of our country's economy.

1. What is the inflation gap?

The inflation gap refers to the gap formed when the actual level of aggregate demand is greater than the national income at full employment, or it refers to the difference between investment exceeding savings in a full-employment economy, that is, aggregate demand exceeds aggregate The difference in supply, when there is an inflation gap, will cause the value of demand for goods and services to exceed the value that can be produced under full employment conditions. Since the economy is already in a state of full employment, society has no way to expand actual production. The idle resources produced cannot increase real output, so when there is an inflation gap, the economy faces upward pressure, and the economy will be balanced at a nominal level higher than full employment income. When the economy reaches equilibrium, if the equilibrium national income is higher than the national income at full employment, there is an inflation gap; if the equilibrium national income is lower than the national income at full employment, there is an unemployment gap

2 ． Types of inflation:

2.1. Mild inflation

2.2. Accelerating inflation

2.3. Extremely rapid inflation

3. Inflation rate

Formula: Inflation rate = (current price level - base period price level) / base period price level (where the base period level selects the price level of a certain year as a reference, so that other The price level in each period is compared with the base period level to measure the current inflation level)

4. Inflation

4.1. The meaning of inflation: Inflation is a sustained increase in price levels at a relatively high rate over a long period of time.

4.2. Causes of inflation:

4.2.1. Since the mid-1990s, my country has implemented an expansionary monetary policy and the central bank has issued too much money in recent years, which has led to excessive currency growth and triggered inflation.

4.2.2. Demand pulls up inflation. The demand pull-up inflation theory analyzes inflation from the perspective of aggregate demand.

The point of view is that aggregate demand is greater than aggregate supply. I have thought that due to various reasons, a situation in which aggregate demand is greater than aggregate supply has formed, resulting in inflation.

4.2.3. Mild inflation has two causes: demand-pull and cost-push. In recent years, my country's food prices have been rising, which is caused by the decline in food production, supply problems, and cost push. It is normal for investment demand to be 20%, and our country has now reached 25%, especially in chemical industry, metallurgy, etc. The rising prices in the industry have caused the prices of raw materials to rise, which is a demand pull. Another factor in mild inflation is international transmission. Foreign direct investment and the expansion of export demand drive domestic prices to rise, which is a demand-pull; while crude oil and other international primary products drive domestic prices to rise through imports, which is a supply factor and cost-push.

4.2.4. Inflation occurs in a closed environment. Due to the circulation of prices, hyperinflation has not occurred in the world in recent decades. Instead, deflation has occurred many times. Due to exchange rate controls, we are unable to keep pace with foreign markets, which objectively leads to inflation.

4.2.5. Due to the imbalance of our country's economic structure, the demand for workers in low-production sectors has moved towards high-production sectors. As a result, the wage growth rate of the entire society has exceeded the economic growth rate, leading to inflation.

4.2.6. The hidden cause of inflation—ecosystem imbalance. Ecological imbalance is the intrinsic cause of inflation.

① When the ecological imbalance occurs, the stable and coordinated ecological structure is destroyed, and the efficiency of material circulation and energy circulation will be affected and reduced, resulting in a reduction in the output of effective materials and energy in the ecosystem, that is, The ecological supply is reduced; coupled with the increasing demand of people with the development of social economy, the overall demand for ecology of the entire society has increased sharply, causing the total demand to be much higher than the total supply, and the supply of products exceeds the demand, which will inevitably drive the corresponding prices to continue to rise. , thus producing demand-pull inflation.

② One of the manifestations of ecological imbalance is the deterioration of the ecological environment, and a large amount of cost must be spent to manage the ecological environment. The social costs of governance come directly or indirectly from various citizens and manufacturers. This social cost is ultimately borne by manufacturers, which increases the production costs of enterprises, thereby increasing product prices, and the corresponding result is an increase in commodity prices. Ecological imbalance has also led to the decrease of natural resources and the increasing difficulty of extraction, which has led to an increase in the cost of resource extraction, an increase in the price of raw materials and energy, and an increase in the intrinsic costs of manufacturers. Causing so-called cost-push inflation.

③The imbalance of ecological structure and environmental pollution caused by ecological imbalance will also deform the structural relationship of supply and demand when leading to an imbalance in total supply and demand.

Even if the output of the entire society can meet the needs of the entire society, it will not be able to meet the total demand due to the unreasonable resource allocation structure, causing the prices of products in inefficient sectors to rise and thereby driving up the entire price level. This is the so-called institutional currency. swell.

5. Countermeasures and measures for inflation

Inflation management is a complex project. In the process of controlling inflation, it is necessary to eliminate the root causes of inflation from a macro perspective. , grasp the intensity of inflation control, and take into account the requirements of enterprise reform and financial reform in time, and also accelerate the adjustment of industrial structure to improve resource allocation, and also consider the changes in the economic behavior of microeconomic entities so that they can adapt management of inflation. Since inflation has various types and causes, and its destructive effect on the economy is obvious, many economists are conducting in-depth research and trying policy measures to control inflation. These measures mainly include:

5.1. Monetary policy. Monetary policy is one of the most basic macroeconomic policies, and it is also an important means of controlling inflation. There are two main ways to use monetary policy to suppress inflation. One is to reduce the growth rate of money supply to suppress aggregate demand; the other is to raise interest rates to suppress investment demand and stimulate an increase in savings, thereby ensuring that aggregate demand is consistent with equilibrium of aggregate supply. By reducing the amount of currency in circulation, my country's central bank increases the purchasing power of currency and reduces the pressure of inflation; at the same time, by raising commercial bank deposit and loan interest rates and financial market interest rates, it reduces currency in circulation, shrinks the scale of credit, and thereby reduces the scale of investment. , to achieve a balance between savings and investment, thereby increasing goods and services, eliminating the gap between aggregate demand and aggregate supply, and thus achieving the purpose of preventing inflation.

5.2. Income policy. Income policy mainly adopts wage and price management policies to prevent the rising trend of wages and prices caused by the two major groups of labor unions and monopoly companies raising prices against each other. Its purpose is to try to control inflation without causing an increase in unemployment. The theoretical basis of income policy is mainly cost-push inflation, because cost-push inflation is due to the increase in supply-side costs, especially the increase in wages, which leads to an increase in the price level. To this end, suppressive income policies must be adopted, which take the following forms: determining wage-price guidance lines to limit the rise in wages-prices. mandatory measures. Tax-based income policy.

5.3. Foreign economic policy. Generally speaking, my country's domestic inflation and its international balance of payments situation have a push-and-pull effect on each other. When inflation occurs in all countries, our country must adopt appropriate foreign economic policies to reduce the adverse impact of international balance of payments imbalances on domestic prices and prevent the import of foreign inflation. The main measures in this regard include:

(1) Implement floating exchange rates. Under the floating exchange rate system, the rise and fall of my country's currency against foreign exchange rates is entirely determined by market supply and demand.

(2) Take coordinated measures with other countries in the field of trade and finance, such as strengthening cooperation with other countries, jointly taking measures to control the growth rate of each country’s money supply, improving the international financial system and other anti-inflation measures measures to stop the spread of world-wide inflation, etc.

5.4. Increase macroeconomic adjustment efforts. In order to continue to maintain the basic stability of the overall price level, relevant departments must pay close attention to, be good at discovering and promptly studying major changes in market supply and demand, and use policy guidance and economic means to make timely and appropriate adjustments. It is necessary to strictly control the introduction of new rising items and increase price inspections. In addition, it is necessary to strengthen the coordination of key products in key industries, especially the energy and raw material shortages that may be caused by excessive growth in some industries, promote the optimal allocation of production factors, stabilize market supply, and ensure a basic balance between supply and demand.

5.5. Effectively strengthen food production, ensure food supply, and stabilize food prices. It is necessary to conscientiously implement the central government's policies to encourage grain production and ensure that direct subsidies to farmers, subsidies for improved seeds, price management of agricultural inputs, and agricultural tax reductions and exemptions are truly in place. Strengthen flood prevention and drought relief and crop field management. While doing a good job in purchasing summer and autumn grains, we must also conscientiously organize and transport grain sources to ensure market supply of grain and keep grain prices basically stable.

5.6. Reduce the level of labor wages, regulate distribution from a macro perspective, narrow the income distribution gap, achieve the unity of fairness and efficiency, reduce the level of labor wages, and control the increase in income and product costs by controlling wage growth. , and then control the price level to prevent the subsequent increase in prices due to the increase in labor wages.

The second and fourth factors increase my country’s inflation risk

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Considering the balance of payments surplus As contradictions continue to accumulate, they will tend to spread towards rising prices. Judging from domestic and foreign factors, the current rising prices are not only affected by accidental or temporary factors, and the risk of inflation tends to rise.

The second quarter monetary policy implementation report released by the central bank on the 8th stated that at present, my country’s economic growth has become more obvious from fast to overheating, with excessive trade surplus, excessive credit, and excessive investment growth. The problem of high energy consumption is still prominent; energy-intensive industries are growing too fast, and the situation of energy conservation and emission reduction is still severe; pressure on price increases continues to increase, especially some food prices and housing prices that involve the vital interests of the people are rising rapidly.

The report pointed out that at present, domestic supply and industrial production capacity are growing rapidly, bottleneck constraints have been eased, and the country has promptly introduced a series of comprehensive measures to stabilize food price increases, which have a certain impact on price increases. inhibitory effect. However, considering that the balance of payments surplus contradiction will continue to accumulate and spread to price rises, judging from domestic and foreign factors, the current price rise is not only affected by accidental or temporary factors, and the risk of inflation tends to rise.

The report analysis believes that the following four factors have increased the risk of inflation:

The prices of grain, meat and other food products are easy to rise but difficult to fall in the short term.

There is upward pressure on energy resource prices. Recently, international oil prices have risen again. Domestic efforts to promote resource price reform and strengthen environmental protection will also drive up energy resource prices. In addition, after the concentrated release of production capacity, it is not ruled out that coal, electricity and oil transportation will be tight again in the future.

Labour costs are rising. On the one hand, it will be reflected in the prices of products and services; on the other hand, it may drive up consumer prices.

Inflation expectations have strengthened, putting further upward pressure on prices. The People's Bank of China's National Urban Depositors Questionnaire Survey in the second quarter of 2007 showed that residents' expectation index for future prices reached 40.2%, the second highest level since the survey in 1999. In addition, the public's perception of inflation is mainly based on the prices of frequently purchased goods. Meat, poultry and eggs, whose prices are currently rising the fastest, are important commodities for residents' daily consumption. Therefore, the inflation felt by residents may be higher than the actual inflation level. When "perceived inflation" is greater than "actual inflation", price expectations may be pushed up further.

In addition, the report pointed out that the previous increase in grain, meat, poultry and egg prices has gradually been transmitted to downstream food processing, catering and other industries. Therefore, it is necessary to pay close attention to price transmission issues to prevent overall price increases.

The central bank stated that in general, against the background of rising global inflationary pressure, China currently needs to pay more attention to the risk of food and other price increases being transmitted to general consumer goods.

The central bank stated that it will continue to implement prudent monetary policies, adhere to stability and moderate tightening, maintain necessary control efforts, strive to maintain a stable monetary and financial environment, control inflation expectations, and maintain basic price stability. We will continue to coordinate the use of open market operations and deposit reserve ratio tools, actively innovate hedging tools based on the needs of macro-control, and strengthen liquidity management. We will steadily advance the market-oriented reform of interest rates, promote the establishment of a benchmark interest rate system in the money market, and further enhance the regulatory role of price leverage. Continue to improve the RMB exchange rate formation mechanism in accordance with the principles of initiative, controllability and gradualness, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

The central bank’s report also specifically reminded that commercial banks should pay great attention to the risks hidden in maturity mismatches and currency mismatches. The report stated that in recent years, with the development of financial markets, especially the activity of capital markets, the asset selection behavior and investment preferences of my country's residents and corporate sectors have undergone relatively significant changes, which has further caused some changes in the asset and liability maturity structures of commercial banks. change. In addition, the currency structure of commercial banks' assets and liabilities has also changed, and currency mismatches have gradually emerged.