The Research On The Relationship Between The Residents' Income Disparity And The Inflation Of China

China has achieved high economic growth since Reform and Opening up, but the income distribution mechanism has changed either, and made residents' income disparity increasing day by day. So as a warning, the Gini coefficient of Chinese residents' income, an index represents Chinese wealth disparity, has exceeded the international standard warning line due to its continuously rising in the passing decades. At the same time, the index of CPI, which represents Chinese price level, has ascended a lot in recent years. So this kind of phenomenon brought much pressure of inflation, and has also been the people's focus recently. Now, the problem of inflation and the widening of residents' income disparity has blocked economic rapid and healthy development, and also influenced the stabilization of society, in a way, it has been a bottleneck of Chinese Economic Reform. Therefore, we should research the subject of the inflation and residents' income disparity carefully. If we can do it, it's not only good for enlarging demand and economic growth, but also good for the stabilization of society.I used the data of China's CPI and Gini coefficient from year 1978 to 2006, and made co-integration analysis and Granger causality test of the relationship of above. Moreover, I even revealed the relationship by decomposing the countrywide income disparity into inner-rural and inner-urban income disparity by Gini Coefficient. After that, I used the Error Correction Mechanism to show the long term relationship between the inflation and residents' income disparity. But the too bigger income disparity in inner-rural brought ascending pressure of inflation, however, the income disparity in inner-urban had no marked influence on it. At one time, the inflation enlarged the residents' income disparity of China, especially a short terminfluence on income disparity in inner-urban.