The Influence Of Inflation On Different Industries

Since2010, China has entered a new round of inflation period because of actively domestic fiscal policy, loose monetary policy and higher commodity prices. On the one hand, despite the central bank try to rise the one year bank deposit rate, investors still feel that the assets held by themselves is continuous depreciating. So they find ways to make such funds into the stock market and expect to get excess returns of investment. On the other hand, Inflation will cause raw material costs rising quickly, and makes the industry managers to face greater pressure. Otherwise, policy makers, in the face of inflationary pressures, also constantly adjust the relevant industrial policies, and try to minimize the losses of some key industry and projects in our country. So under the background of inflation, business entities and participants in the market should be clear and accurate understanding the market condition, and making accurate judgments and developing effective strategies to avoid more losses.In the background of inflation or deflation, various industries will inevitably be affected. However, each industry presents different characteristics during this period. Some industries will always got a positive return when facing higher inflation; some industries can got the medium or long-term positive gains during the period of inflation; some industries always got the negative return in the entire inflation period. After the analysis of long-term observation of the industry index and the investment preferences of market institutions invest, we can find that if inflation occurs, compared to the downstream industries, the upstream and midstream industries can get better performance. Compared to the industry which concentration is very low, the industry which master of scarce or occupy a monopoly position or have stronger bargaining power always can resist the negative impact of inflation.Based on the empirical results above, and in order to better understand the information in this regard, we summarize a great deal of relevant literature, such as inflation and the overall stock market volatility, the stock market industry classification, the distribution of different industry rate of return, etc. Analysis results revealed that, although there are many studies of inflation impact on the stock, and many scholars analysis of the main factors affecting the yield fluctuations from different point, the study of different industry return volatility literature based on the perspective of inflation is relatively less. Therefore, we intend to conduct a more specific and in-depth analysis of this issue.The innovation of this paper is mainly reflected in the following aspects. In the First, as mentioned above, because the article of the effects of inflation on different sectors stocks is very less, this study is to compensate for the shortcomings of the research in this area; Secondly, the empirical research mainly use real data from the CSI300index of top ten industries, covering Shanghai and Shenzhen. And industry criteria for the classification is based on the industry chain index and classified the ten industries as the upstream, middle and lower stream. Therefore, the innovative of data selection is more authoritative than previous studies. Finally, this article establish three vector autoregression (VAR) model to study the inflation impact on different industries. And compare to the empirical results above, we eventually confirmed that inflation shows diversity impact of different sectors of stocks.