Analysis And Contrast On Factors Influencing Inflation Expectations Of China And America Based On Factor Analysis

The expectation theory of inflation introduces expectation to the study of inflation, which discusses the issue that the economic subject changes the economic behavior under the action of expectation thus affecting the economic development. It is of great significance in promoting further development of the inflation theory. In recent years, China's economy has been in a constant downturn. The growth rate of China's GDP in 2015 was less than 7%, hitting the new record-low level in nearly 20 years. In order to get out of this situation, the government has taken various policy measures to stimulate economic development. The Central Bank of China has successively cut the requirement reserve ratio and lowered key interest rates for five times throughout 2015, its intention of reviving the economy by expanding the demand is obvious. The frequent initiatives and obvious intention of the government will be bound to encourage consumers to generally agree that the price level will show a rising trend in 2016, thus enhancing the inflation expectation of consumers. However, incorrect inflation expectation is very negative for a stable and effective growth of consumption. Therefore, understanding the factors affecting the inflation expectation and keeping it controlled within a certain range is crucially important.Based on analysis of development of expectation theory of inflation as well as the transfer of factors affecting inflation expectation, by using factor analysis method, this paper take China and America as the cases of study. It carries out factor analysis and comparison by selecting 12 factors affecting the inflation expectation from five aspects of cost factor, input factor, capital factor, currency factor and policy factor, and then analyzes the causes of differences. Through empirical analysis, we can come to the conclusion that the obvious common factor that affects China's inflation expectation is the cost factor and input factor, while the America's inflation expectation is obviously affected by the capital factor and input factor. Then this paper conducts analysis of causes of differences between the two countries from the economic system and international status, degree of capitalization as well as monetary policy system, and accordingly proposes relevant policy recommendations for the control of China's inflation expectation.