Prices Of Primary Products To China's Inflation Analysis

The escalating CPI index indicates that China has entered a new period with high inflation. Inflation problem has already attracted economists' attention, and they favor different causes of inflation, which cover structural inflation, cost-push inflation and imported inflation. This paper stands with the last one. As is known, inflation is the result of demand-supply imbalance. Although it is partially due to domestic overheated demand, the result of high GDP growth, such imbalance is mainly caused by imported supply factor, which are keeping-rise international prices of primary commodities. This paper focuses on one specific imported channel- from primary commodities to ultimate goods. Such relationship can tell from the similarity between the figure of international CRB index and that of domestic CPI index.This paper begins with visual relationship between international price of primary commodity (CRB) and domestic inflation (CPI). Model analysis and econometrical test get deeper conclusion to describe how dynamical price of primary commodity affects inflation of ultimate goods. VAR model is used to explain the structural growth in domestic CPI. And we find price of primary commodity is a good signal to predict later inflation. At the end, based on two dominant anti-inflation policies and measures that have been taken, the paper gives several policy recommendations to treat inflation.