The Analysis Of Current Situation And Countermeasures Of Chinese Inflation Based On The Cumulative Process Theory

After years of rapid economic growth and low inflation, China generated ahigher level of inflation in2007, due to overheating of the economy. The globalfinancial crisis suppressed the inflation and countries generally adopt expansionarypolicy to prevent financial crisis which helped a new round of inflation potentialproblems came out in the second half of2009. This round of inflation symbolized inrising prices for food, housing and a sharp rise in prices of primary products andbrought the overall price level rising pressure. Till July in2011, China’s inflation ratehas reached6.5%and decreased to6.1%in September. The phenomenon of inflationis similar to the financial crisis in1998and1993which China has initially establishedsince the establishment of the market economy. With carefully study, it is not difficultto find, since the reform and opening up, that China’s economy has developed veryfast, but also with the fluctuation of economic. However, many scholars insisted cost-push theory which is to increase the product value in the process of circulation andlead to increasing price, ignoring the differences between the money rate of interestand the natural rate of interest. This view is from the Swedish Wicksell’s CumulativeProcess Theory. Cumulative Process theory mainly considers that the differencebetween currency interest rate and the natural rate of interest will produce a series ofeffects on the prices of consumer goods, capital goods prices, investment, savings,and so on, which prompted the price rise or fall. This situation is consistent withChina’s reform and opening up economic fluctuations. Therefore, exploring thecurrent situation and problems of inflation in China and putting forward thecountermeasures have important theoretical and practical significance to easeinflationary pressures in china.This paper is divided into six parts to carry on the elaboration to the inflation inChina which are based on Cumulative Process Theory. The first part is a briefintroduction which describes the background, significance, method, the idea,conclusions and innovations of this article. The second part mainly discusses thetheory of inflation, the main representative theory of Adam Smith’s early thought, Sai’s law, the Quantity Theory of Money, Keynes’s economic thought, the neoclassicaleconomic theory and the Barro Gordon model. The third part is the detailedintroduction of Wicksell’s Cumulative Process Theory which consists of the basiccontents, characteristics of the theory, the process mechanism, the mathematicalrepresentation and the development of Cumulative Process Theory in economics andits further. The fourth part describes the cumulative process of inflation in China. Itmainly describes the relation between Cumulative Process Theory and inflation inChina, based on the current situation of inflation. Through the empirical analysis ofour CPI data, the annual interest rate data, means of production and living materialsannual growth rate, we verify the view that Wicksell proposed-use macro monetarypolicy regulation of price regulation as the medium of interest, then we give anempirical analysis on the current situation of inflation in China and put forward somepractical countermeasures finally.The possible innovations of this paper: First, we elaborate Cumulative ProcessTheory mathematically; secondly, based on the Cumulative Process Theory, weanalyses inflation of China with a brand-new angle and the latest data system. Butlimited to the deficiency of the English level and knowledge in the process of writingthis paper, there must be many problems, for example, the treatment of foreignliterature collection and reading are lacking, pathway on inflation also needs to becarried out in-depth analysis etc..