A Study Of Price Transmission Between Consumer And Producer Price Index In Different Stages

In a market-oriented economy, the transfer process of goods, from production to distribution and finally to consumption, is determined, but the process of price conduction is uncertain, which makes chasing the beginning and stopping the spread of inflation difficult. This essay tries to study the transmission between consumer and producer price index and build a transmission model, revealing the route of price conduction in our country.Firstly, this essay will introduce the content of CPI and PPI index in our country. Secondly, it will detect the possibly routes of price conduction by building a firm-model. Finally, it will empirically analyze the transmission between CPI and PPI in different stages.By the study of the three inflation cycles in past15years, it can be found that factors which affect the domestic price fluctuation are becoming more complicated. There are domestic factors and international factors, upstream factors and downstream factors, supply factors and demand factors.There are two most important domestic factors that influence price fluctuation: the expansion and suppression of investment and food prices represented by pork price. The expansion and suppression of investment are affected by economic policies. Expansionary economic policies will stimulate the demand of investment and contraction economic policies will curb the excessive demand of investment. Because the demand elasticity of food is far less than the supply elasticity, the food price will perform according to the divergent cobweb model, and the volatility may be increasing.