Social Sciences in China (Chinese Edition)

No.5, 2013

On the Codependent Cycles of Chinese Inflation

(Abstract)

Wang Shaoping and Sun Xiaotao

A test and decomposition of the codependent cycles of CIP, APPI and M2 reveals that the cyclic fluctuations of agricultural product price largely stem from the grain price fluctuations induced by factors such as “land enclosure” and the impact of the abrupt changes of pork price and other factors on APP. Therefore, changing the grain purchasing price protection to grain production and sales protection will reduce the impact of grain price and other factors on APP and inflation. The weak cyclic codependence between APP and CPI and M2, along with the strong cyclic codependence between M2 and CPI, has given rise to a “shuttle-shaped” intersection of cyclic elements. This suggests that China’s monetary policy goal has been alternating between curbing inflation and stimulating growth. When the APP cycle is basically stable, China can implement a moderately easing policy to stimulate economic growth, which, however, must be based on a 1.5 or so increase of the codependent cycle elements of M2. When APP rises sharply or is in the rising phase of cycle elements, China should emphasize the APP control, and should delay the moderately easing monetary policy till the APP cycle becomes stable or is in the downlink phase.