Analysis Of Factors Influencing Inflation Expectations In China

The problem of inflation affects the daily life of residents and the normal operation of capital market, so the good management of inflation, stabilize the price level is very important. Inflation is the result of many factors, more and more scholars, government and all walks of life pay attention to inflation expectations, as one of the factors affecting inflation. To make a systematic study of the effect of China’s inflation expectations, and have a better understanding of how the economic subject of expectations formation and expected generated, it has important theoretical value and practical significance to stabilize the price level and the overall economic development.Inflation expectations which is an unobservable variable in usual is a prior subjective estimation in future inflation changes in direction and magnitude of the economic subject. Methods of quantitative inflation expectations in the study can be summarized into three categories in generally:statistical survey; extract from financial market; modeling method. In this paper, based on the People’s Bank of China’ "urban depositor survey report" result, using the Carlson-Parkin probability method (assume economic subjects’ inflation expectations obey normal distribution) China’s inflation expectations series are calculated. The results show that high correlation between expected inflation rate and actual inflation rate, the expected inflation rate fluctuation smoothly, the economic subjects will continually change inflation expectations based on the actual inflation rate.The formation mechanism of inflation expectations, namely economic subjects according to actual inflation over the past and other related information to estimate future inflation. Inflation expectations formation mechanism is mainly: static expectations, extrapolative expectations, adaptive expectations, rational expectations, sticky expectation. This paper test the forming mechanism of expected inflation rate based on the classical Carlson-Parkin probability method, the results show, inflation expectations’ formation mechanism are adaptive expectations, the economic subject will predict be the future inflation based on the actual inflation in the past.In addition to that, inflation expectations in China are not only influenced by actual inflation, therefore, this paper analysis influencing factors of inflation expectation in china in the aspect of qualitative and quantification. First, we analyze the impact of uncertainty, heterogeneity, cognitive ability and information processing ability. On the base of that, this paper chose the actual inflation rate, the growth rate of the money supply, the price of real estate, excess wage growth rate, the production of agricultural products price, real effective exchange rate of RMB, WTI crude oil spot price, effects of various factors on inflation expectations are analyzed by Granger causality test, VAR impulse response function and variance decomposition method. Conclusions show:the expected rate of inflation shocks will impact on future inflation expectations, inflation expectation in China has adaptive characteristics; the actual inflation rate, excess wage growth rate, the production of agricultural products price, international oil price have significant impact on inflation expectations, the growth rate of money supply, the price of real estate have relatively small effect.Finally, we make some recommendations according to the results of theoretical and empirical analysis on China’s inflation expectations. Short and long term actual rate of inflation will have an effect on inflation expectations, the government should strive to control the current inflation; At the same time, should increase the input factors, especially the concern of the international oil price changes; Agricultural prices and inflation expectations of the important factors of real control good agricultural prices is also the focus of the government.