Generally speaking, the causes of inflation may be cost-driven, demand-driven and what some people call structural inflation. But generally speaking, the current inflation in China is not that type, which fully embodies the characteristics of Chinese style. Due to the characteristics of Chinese style, the reasons will be different. It can be said that if we don't understand the root of inflation in China, it is impossible to find a solution to the current inflation in China.
Let's start with the case of hyperinflation in Saks Bolivia, the father of "shock therapy" and professor of economics at Columbia University. From July 1984 to July 1985, Bolivia's prices rose by 3000%, resulting in hyperinflation. At that time, the president invited Sachs to help find ways to control this hyperinflation. Saks led several assistants to China and began to calculate all kinds of data. Later, he found that the root cause of the country's hyperinflation was that the government completely relied on the central bank as a financial means of deficit financing, and the key to the budget was the price of oil. Because the government's fiscal revenue depends largely on the tax levied on oil, when the oil price drops sharply, it will seriously worsen the whole budget. Therefore, Sachs suggested that the main measure to stop hyperinflation is to raise oil prices substantially at one time, supplemented by corresponding fiscal measures. At that time, both academic circles and government departments believed that the policy could not only end the hyperinflation in the country, but also make it worse. However, the Bolivian President accepted Sachs' suggestion and began to implement the plan on August 29th (1985). The first is to raise oil prices substantially. With the soaring oil price, the budget deficit disappeared. The sudden disappearance of the budget deficit stabilized the exchange rate immediately. The stability of the exchange rate also means that the price of the country's currency peso suddenly becomes stable. Within a week, Bolivia's hyperinflation ended.
In fact, from this case, the level of inflation is not important, what is important is to find the root cause of inflation. If we only look for answers from textbooks, if we only look at the surface of the incident and don't understand it from the incident itself and its internal relations, it is impossible to find a solution to inflation. As far as the current situation in China is concerned, although the CPI in July has risen to 5.6%, and the domestic CPI growth trend has not slowed down, the national statistics department or some other government departments did not say that the inflation rate in July was 5.6%, but that the CPI in June was 3.5% from May 438 to July. They think that the current CPI increase is mainly the result of rising food prices. If the factor of rising food prices is deducted, the current CPI increase is actually.
In fact, no matter how it is disguised, it is an indisputable fact that inflation in China is too high and the pressure is increasing. Imagine, at present, there are serious defects in China's CPI statistical system, not the rise in food prices, can the whole CPI increase be reflected? I have written many times that Chinese-style inflation is also a monetary phenomenon, which starts with the rising prices of two major assets (property market and stock market) and then spreads to the rising prices of food, leading to overall inflation.
According to statistics, broad money increased from 1999 to more than 37.7 trillion at the end of the second quarter of 2007, an increase of more than three times. From the end of 1999 to the end of the second quarter of 2007, various loans increased from more than 9 trillion to more than 25 trillion, an increase of nearly three times; In addition, foreign exchange reserves increased from154.6 billion US dollars at the end of 1999 to1332.6 billion US dollars at the end of the second quarter of 2007, an increase of nearly nine times. It can be said that in the past seven years, bank loans and foreign exchange reserves have increased rapidly, thus flooding the financial market with money. When the financial market is flooded with money, we should first find a way out from the real estate market and push up the real estate market price; When the stock market began to develop and prosper, a large amount of funds flowed to the stock market, thus blowing up the stock market bubble. At this time, inflation in China began.
Chinese-style inflation is caused by too much money, but it is not that too much money will flow to all industries at the same time in an average way, resulting in an overall increase in the prices of various commodities at the same time, but that too much money will first flow into powerful departments or industries (such as real estate), and then these industries will invest or consume, pushing up the price level of goods or services. As a result, the prices and incomes of related industries have increased, and these related industries have increased their investment or consumption, which in turn has an impact on the prices of products needed by these industries.
In this chain of price increases, the time and range of price increases are often distinguished by proximity to power. The closer an industry or enterprise is to the power of the government, the earlier it rises, and the greater the increase. The farther away from the government power, the later the rise time and the smaller the increase. We can see that this round of inflation in China started from the real estate market at the earliest, and the domestic real estate price not only rose early, but also rose by a large margin (the data released by the government statistics bureau is inconsistent with the actual rate of price increase). The rise of real estate market price will inevitably lead to the rise of product prices, wages and service prices in dozens of industries related to real estate. Then there is the rapid rise of the stock market price (the initial factor is related to real estate, but once the stock market price rises, its upward trend is completely on the road of artificial manipulation). Finally, the price increase is transmitted to the prices of agricultural products and food in the weak links of the whole economy. Because agriculture is not only the farthest power source from inflation, but also the most vulnerable sector in the whole socio-economic interest pattern. As the Austrian economist Rothbard said, once the prices of goods and services in these most vulnerable sectors rise, it marks the beginning of all-round inflation.
Moreover, judging from the defects of China's current CPI system, in response to the social doubts about the CPI index of the National Bureau of Statistics, its officials have been emphasizing that as an international practice, CPI does not include the price of commercial housing. However, we should see that the importance of CPI index has long been a household name. Because CPI index not only affects every consumer's behavior, how much money they decide to spend to buy goods and services, but also affects the market operation cost, the investment decision of enterprises and individuals, the distribution and transfer of social wealth, the decision of the government and the monetary policy of the central bank, and the life of every citizen in our society. Such an important indicator system, if it can't truly reflect the actual economic life, if it deviates from it instead of the actual consumption pattern and the price change trend of residents' consumption behavior, then it shows that our CPI system has serious defects, and this defect is not the problem that CPI includes or does not include housing prices.
Quite simply, the defect of China's CPI index system is that it does not reflect the changes of the whole residents' living price in time, and does not really reflect the changes of residents' consumption lifestyle. For example, the CPI system in China has serious problems in sample selection and weight determination. I don't talk about whether the house price is included in the CPI index. We only take the housing category as an example. Not only is the weight of housing in China too low (about 13%, the international practice is more than 30%), but the base is ridiculously low. From 2003 to 2006, the total annual housing consumption of urban residents was only 699 yuan, 733 yuan, 808 yuan and 904 yuan. It seems that the annual growth rate of this figure is not small (that is, the average annual growth rate is above 5%), but in fact, due to the low base and small weight, the impact of residential consumption growth on the overall CPI is very limited. It can be said that regardless of the weight of housing, it is at this level of housing consumption. If you are in Beijing, it is not enough to rent a 5 square meter farmer's house in the suburbs of Beijing (this is completely a fantasy figure, I don't know how to imagine! )。 If Beijing residents live near Peking University (not to mention the International Trade Center) and the housing area is 90 square meters (that is, the average level of the Ministry of Construction), then the household's residential consumption must be above 50,000, which is far from the figure (the residential category includes rent (people who have already bought a house are even fictitious, even if they don't rent a house, they should count the rent), building decoration materials, mortgage interest rates, property fees, water, electricity and fuel and other household consumption related to housing). It is precisely because of such a seriously flawed CPI index system that residents' housing consumption can increase rapidly and residents' rents can rise rapidly (this is the inevitable trend of rapid rise in housing prices), but the CPI index has not risen to food prices and cannot reflect the current trend of changes in consumer prices in China, so as long as food prices rise, CPI will inevitably rise (because food accounts for 33.6% of CPI). Earlier, some people tried to exclude the increase in food prices from the increase in CPI, indicating that the inflation rate in China is not high. However, if rising food prices are really excluded from China's CPI, then inflation in China will never happen.
It is precisely because of this understanding of inflation that the government can't find the real cause of inflation at present, so it can't prescribe the right medicine. For example, at present, some government departments only start from the last link of price increase, how to control the rise of food prices, and even import pork from the United States to alleviate the rise of pork prices. However, as pointed out above, the appearance of inflation is a general rise in prices, but the most fundamental reason is the monetary phenomenon. If the government only controls inflation by controlling the price of a commodity, then the result can only be the opposite, and it is impossible to be effective at all.
Historically, there have been many cases in which price control failed to control inflation. For example, the latest example is Zimbabwe in Africa, where inflation has reached 70 times. The government ordered all prices to fall and the people enthusiastically supported it, but the actual result was not to curb this vicious inflation, but to make the whole country's economy more depressed and the inflation rate higher. Similarly, in the late 1940s, the Kuomintang used price control to control inflation, which also ended in complete failure.
At present, there is inflationary pressure in China, and the government is also trying to control the prices of the weakest industries to control the further rise of inflation. For example, the Ministry of Commerce and the National Development and Reform Commission have recently made great efforts to control the rise in food prices and pork prices, trying to control inflation in this way. It can be said that there is no problem for the government to control bullying and price collusion, but trying to control prices through administrative means can not only solve the problem of inflation, but will make it more serious.
Therefore, in the face of current inflation, we must first grasp its essence and find its root. In other words, Chinese-style inflation is also a monetary issue. Since it is a currency issue, it must be solved through the central bank's monetary policy, not the administrative means of government price control. There are many ways to solve Chinese-style inflation, but the most important thing is to tighten the money supply, reduce bank credit, and curb a large amount of bank funds from entering the real estate market and the stock market through the price mechanism of the central bank (that is, interest). This is the root of current inflation in China. If this is not the case, it is impossible to curb Chinese-style inflation by letting a large amount of funds enter the two major asset markets and pushing up their prices.
At the same time, it is necessary to comprehensively clean up and rectify the CPI statistical system and other corresponding statistical indicators with serious defects in China, so that these statistical indicators can truly reflect the changes and trends in actual economic life. It can be said that what CPI includes is not important. What matters is whether the CPI index reflects the changing trend of consumer goods and services. Don't always use international practices as a shield, but look at the actual situation in China. Only in this way can we provide effective information for the government, enterprises and individuals to make correct judgments and decisions. Otherwise, the policy adopted by the government is the best, which can never be shown in the basic data, thus leading to some misleading judgments.