The Coordination Of The Contradiction To Straighten Out The Relative Price Of Industrial And Agricultural Products And Inflation Control

Since the beginning of this century, with the improving and perfecting of the modern market economic system, China’s economic power grows rapidly and makes remarkable achievements. However, behind the high-speed economic growth, there are a series of problems caused by the “agriculture, rural and farmer” and economic resources mismatch: the allocation of resources which is over focused on industrial and city make the agricultural investment insufficient and the rural development seriously lagging behind; The twisted relative price of industrial and agricultural products and the long-term accumulation of "price scissors" also make the imbalance in the distribution of national income and low income level of farmer and expanding income gap between urban and rural. How to break out from the hardship of contradiction and mismatch become the primary task of the economic growth and structure transformation in the future. However, the source of “agriculture, rural and farmer” and economic resources mismatch is the long-term accumulation of twisted relative price of industrial and agricultural products. Therefore, straighten out the relative price of industrial and agricultural products has become necessary way to break out from the hardship and to realize the transformation of economic structure and the development of the rural economy.The relative price is an important factor of distribution. In the market economy environment, resources realize effective allocation through the market, relative price adjustment will not cause the overall price level to rise. However, the non equilibrium industry development in China and the long-term accumulation of twisted relative price of industrial and agricultural products make the productivity of agricultural sector seriously lag behind the industrial sector. The way to realize the same income between the two sectors’ workers is to increase the agricultural products price, the structural differences between two sectors cause structural rise in price. Although the rising price of agricultural products will ease the twisted relative price to a certain extent, it also pull up the price of raw materials and then the price of upstream products. Food as the major product of agricultural sector, there is a correlation between its price and agricultural products’ price. Moreover, the price of food is an important part of the CPI index. In recent years, the characteristics of rising food prices pulling CPI rise is significantly, there is a correlation between the price of agricultural products, food price and the fluctuation of CPI. When the food price rises and causes the structural inflation, the Engel coefficient in different income groups is Significant different. The food expenditure proportion of the low-income groups is larger, and in the process of inflation pressure from potential into reality, the low-income groups will be influenced deeply. When the rising price level makes the low-income groups cannot afford, in order to maintain the stability of economic society and realize effective control of inflation, the government will use price adjustments to restrain the rising prices of agricultural products, and the twisted relative price of industrial and agricultural products will return.The long-term accumulation of twisted relative price of industrial and agricultural products is the source of contradiction and mismatch, but to straighten out it will be restrained by inflation tolerance, and will cause the high food price volatility, the relative price of industrial and agricultural products has not been solved effectively, finally form the contradiction of straighten out twisted relative price and controlling the inflation. The accumulation of the contradiction will restraint the reform of "agriculture, rural and farmer" and become unstable factors affecting the healthy development of China’s economy.Therefore, this paper will analysis all links of the contradiction of straighten out the twisted relative price and controlling the inflation, it will study from the following four parts:Part one, Analyzing the necessity of straightening out the twisted relative price of industrial and agricultural products. Firstly, based on the summarization of the phenomenon and causes of the twisted relative price, this paper demonstrates its negative effects. Secondly, based on the elasticity theory and structural theory, this paper analyses the effects on "agriculture, rural and farmer" caused by the twisted relative price and discusses how the rising price of agricultural products affects the income of farmers. This study establishes vector auto regression(VAR) model for empirical analysis by using the samples of CPI data, the price index of agricultural production and the price index of agricultural means of production released by the National Bureau of Statistics, it discusses respectively the effects of rising price of agricultural products and rising costs of agricultural production on the actual income of farmers. The study finds that there is a positive relationship between the rising price of agricultural products and increase of farmer’s income, but negative relationship between rising costs of agricultural production and increase of farmer’s income. But the positive effect is far greater than negative effect, straighten out the relative price of industrial and agricultural products is a effective way to increase farmer’s income.Part two, to straighten out the relative price of industrial and agricultural products will cause structural inflation. Firstly, based on a comprehensive review of researches about inflation, this paper discusses the relationship between agricultural products’ price, food price and CPI based on the structural theory. This study selects the agricultural product price growth rate, the food price growth rate and the CPI growth rate from 1978 to 2012 as sample data, Constructing theoretical model to analysis the relationship between the three indexes, using vector auto regression(VAR) model to study the interaction between the three indexes dynamically. Research finds that in the short time, the rising price of agricultural products and food will affect inflation obviously, the accumulation of "price scissors" is the major source of structural inflation pressure, there indeed exist contradiction between straighten out the twisted relative price and controlling inflation. In the long term, the effect on inflation will be smooth gradually. So, the process of gradually opening up the price of agricultural products will inevitably be accompanied by a certain degree of inflation, this should be tolerated, or have to pay the cost.Part three, straighten out the relative price of industrial and agricultural products is restrained by inflation tolerance. When the food price rises, the proportion of food expenditure of the low-income groups will increase obviously because of the relative high Engel coefficient. When food price pull inflation from potential into reality, low-income groups will be affected more. When the rising price level makes the low-income groups cannot afford, the government will restrain the rising prices of agricultural products, and finally cause the accumulation of twisted relative price of industrial and agricultural products again. Therefore, this paper first defies what is inflation tolerance and low-income groups. Next, this paper discusses the effects caused by inflation on different income groups’ actual life, by constructing inflation affordability index system and evaluation system to evaluate the inflation tolerance of low-income group objectively.Part four, conclusion and suggestions. By analyzing all aspects of the contradiction, this paper proposes that to straighten out the relative price of industrial and agricultural products is the key factor of the contradiction; agricultural industrial development is the basis of the contradiction; the market adjustment of agricultural product price and the reform of agricultural product target price system is the requisite measure of solve the contradiction. The process of gradually opening up the price of agricultural products will inevitably be accompanied by a certain degree of inflation, this should be tolerated, or have to pay the cost. By means of accounting, proposing the prices of agricultural products at an average annual growth rate between [9.24%,13.91%], The reasonable return of the relative price will be achieved. To achieve this, this paper put forward policy suggestions as follow: Increasing subsidies and improving the pertinence and effectiveness: “ increase income and reduce expenditure”, increasing the actual income of farmers; Macro-control discretion to prevent sharp fluctuation in the price of agricultural products.