The Inflationary Effect Of International Oil Shocks In China

China’s current development is characterized by high oil intensity and low energy efficiency. Meanwhile, the global commodity market has seen increasingly oil volatility. With the near completion of pricing marketization in the aviation oil market, China’s oil price reform has reached a crucial stage.With this background, studying the inflationary effect of international oil price shocks in China could help us better comprehend the pass-through mechanism of oil price shocks in China’s economy, in an effert to devise better policies coping with the increasingly frequent oil shocks.In this paper, I apply Philips model together with input-output analysis, investigating the inflationary effect of oil shocks in China from both the time-varying perspective on oil price mechanism as well as the national comparative perspective between China and U.S..I find that with the deepening of oil price reforms in China, the inflationary effect of oil price shocks on PPI is becoming more and more significant. However, due to price control and market competition, among all other facts, the oil price pass-through to CPI was largely blocked in China, explaining the isolation of China’s price level from the international oil price shocks.Further study indicates that administrative price control does help in curbing imported inflation. However, from the longer point of view, optimizing economic structure and lowering oil intensity could do a better job in mitigating inflation under oil shocks.