An Analysis Of The Causes For China's Inflation During 2003-2008

By analyzing the trend of 2003—2008 inflation in China and the national policy of controlling inflation, this paper discovers this round inflation is of hump-shaped trend and structural features. The food and fuel prices are soaring while other goods prices are stable. Transportation, communication, clothing, etc. are even deflation. The main policy of controlling inflation is monetary policy while fiscal is an auxiliary one. We argue that food prices rising, fuel prices and High foreign exchange reserves and trade surplus are the main reason for recent inflation. Among these reasons, food prices rising is caused by pork and farm product prices. Farm product prices rising is due to low grain prices before and comparative disadvantage of some Chinese agricultural products. High energy prices are mainly due to our limited traditional energy reserves, demand exuberant and International energy price rising. Foreign trade led to excessive foreign exchange and causes inflation. Excessive money supply lead to devaluation of the RMB and inflation. The empirical part proves these points. Besides these, this article argue that although monetary theory could explain recent inflation, excessive growth of money supply is not the root cause of recent inflation but only an intermediate cause.