The Effects Of International Commodity Prices Change On Domestic Price Level

In the past, Most of the literature of price changes is focused on domestic factors. But with China's rapid economic development, the import demand for international resource commodities is increasing. The rising international commodity prices will be delivered to the domestic market pass through import channels, to promote the domestic price level. It is an important reason to domestic inflation in 2007. After the financial crisis, with the recovery of international commodity prices, domestic prices are constantly rising, and become a focus topic. In the long term, there are good prospects for China's economic development; the demand for resource commodities will continue to increase, so the pressures of imported inflation will persist. Therefore, to find out how the international commodity price fluctuations affect the domestic price level is important.Firstly, this paper analyzes the change of international commodities prices recently, including crude oil, iron ore and agricultural products, also the change of China's imports, so we can feel their impact on domestic prices. Then analyzes the transmission path of the international commodity prices change on domestic prices and the factors that affect the pathway. In empirical part, we use the extension of Phillips Curve to test the effects of International commodity prices change on domestic inflation at first. It is found that GDP is still the root cause of inflation, but the effects of International Commodity Prices change is also statistically significant. Then use Granger causality test and VAR model to research the effects of CRB index and its three sub-index change on China's PPI and CPI. The results show that the changes of international commodity prices have significant effects on China's PPI, but the effects on CPI are not significant. The international energy prices and metals prices have significant effects on PPI, and PPI will feedback a few months late. In addition, the international agricultural products prices have significant effects on CPI, On the basis of above analysis, the author put forward some recommendation against international commodity prices changes.