In July 2023, the national consumer price index (CPI) experienced negative growth, and the overall price level continued to run at a low level thereafter. The full-year CPI only increased by 0.2% year-on-year, and the core CPI increased by 0.7% year-on-year, which was lower than the 3% expected at the beginning of the year. annual targets and market expectations. The weak overall price trend has triggered some concerns. Everyone is worried that the general and long-term low price of consumer goods will lead to shrinking demand for goods, declining consumption willingness, and weakening economic growth expectations. The direct consequences will be a decline in corporate production profits and a reduction in investment willingness. However, due to The fixed production costs and institutional costs of enterprises have not been reduced, and the willingness of enterprises to invest has been further reduced, thereby reducing recruitment and inventory, resulting in a large number of idle resources and unemployment, and ultimately leading to economic stagnation.
Judging from the lessons of Japan’s economic recession, the inability to guide the overall price level to return to a reasonable level is an important reason for the long-term sluggish economic growth. The long-term low level of the general price level will not only suppress demand and form a “low desire society”, but will also lead to the failure of macro policy tools due to the solidification of expectations, and the spread of the risk of real economic recession to the financial sector, ultimately leading to a difficult return. Based on this, it is necessary to pay close attention to the price trend and be alert to the potential risks caused by long-term low prices.
In fact, whether looking at historical trends or current characteristics, my country does not show a tendency to enter long-term deflation. An objective look at the factors affecting my country’s price trends and their changes will help clarify the current debate on price issues.
Showing obvious structural short-term characteristics
Similar to previous downward price cycles, the current low overall price level is the result of changes in economic growth. Affected by the COVID-19 epidemic and the international environment, domestic effective demand is insufficient, consumption and investment have declined, and profits in the industrial manufacturing sector have declined, which is comprehensively reflected in the price level. However, a comprehensive analysis of the reasons and extent of the low overall price level shows that its trend has obvious structural and short-term characteristics.
Currently, one of the main reasons why the general price trend has fallen back and is lower than expected is the decline in food prices, especially the price of important commodities such as pork. Due to early oversupply, pork prices continue to face downward pressure. Data show that in 2023, my country will produce 726.62 million pigs for slaughter, a year-on-year increase of 3.8%, which is close to the highest level in 20 years; the total output of major livestock and poultry meat is as high as 96.41 million tons, the highest level in 20 years. “Who will come?” Wang asked loudly road. high. The large supply has led to a significant and sustained decline in domestic pork prices. According to calculations by the National Bureau of Statistics, the contribution of food to CPI was -0.75% in October 2023, while it was 1.26% in the same period in 2022. The low level of food prices is the key to the current decline in overall price levels.
Changes in international input factors are another factor that affects changes in the overall domestic price level. On the one hand, the supply of international bulk commodities such as food and energy has gradually stabilized. Due to the good weather and production conditions in the main producing areas, heavy production in some areas such as the Black Sea,Transportation channels in key areas have been restored, and international food supply is relatively sufficient. According to the International Food and Agriculture Organization’s forecast, cereal harvests and stocks will hit record highs in 2024, and price levels will decline steadily. Recently, U.S. quotations for the main futures contracts on the Chicago Mercantile Futures Exchange show that global wheat futures prices have fallen sharply, by nearly 21%; corn futures prices have fallen by about 31%, the largest decline since 2013, ending several consecutive years. The upward trend; the price of soybeans, which my country needs to import in large quantities, has also dropped significantly. The continued impact of OPEC’s production cuts and the Russia-Ukraine conflict has weakened, coupled with the slow global economic recovery and the increase in U.S. energy exports, resource and energy commodity prices may maintain a steady downward trend. According to statistics, the price per barrel of Brent crude oil fell by 10.32% in 2023, and the price of West Texas Intermediate crude oil on the New York Mercantile Exchange fell by 10.73%, both recording the largest annual declines since 2020. If there are no sudden geopolitical events and major adjustments to the international energy consumption pattern, there will be no support for international commodity prices to continue to rise. On the other hand, in order to cope with high inflation, major central banks in the United States and Europe have to frequently adjust their monetary policies, causing their inflation levels to fall significantly, which objectively reduces the input impact on changes in my country’s overall domestic price level.
To sum up, the periodic decline in economic growth, investment and consumption are still in the recovery period, the oversupply of important commodities such as pork and the decline in international commodity prices are important reasons for the low overall price level. These factors are obviously phased and short-term in nature.
From the overall price level in our country, has something happened? “Looking at the historical trend of fluctuations, the overall price level has a certain degree of inertia when running at low levels, but the duration is relatively limited. Several typical downward cycles in the past, such as the negative year-on-year growth of domestic CPI in February 1998, lasted for more than two years. , and then the overall price level gradually rose back to a reasonable level; in September 2001, the CPI turned from positive to negative year-on-year, and lasted for a year and a half; in 2009, affected by the international financial crisis, the CPI grew negative again, for 9 months Later, it turned from negative to positive. It can be seen that as the macro-control measures of our country gradually mature, the cycle of low operation is shortening, and it has also accumulated good policy experience in responding to low price operation, and has the ability to carry out targeted regulation.
Stable and positive economic development is the key
The overall price level is the result of macroeconomic operations and a manifestation of changes in the supply and demand pattern. At present, China’s economy is generally recovering and improving. From the perspective of industrial operation, the added value of industries above designated size will increase by 4.6% year-on-year in 2023. Production in key industries is generally improving, and 28 of 41 major industrial categories maintain growth. The fundamentals of the ten key industries are solid, with an average growth rate of more than 5%, which is higher than the national average growth rate of industrial added value above designated size. From the perspective of consumption, the rapid growth of online consumption has effectively driven the recovery of domestic demand. In 2023, China’s express delivery businessThe total amount completed is 132. What is Sophon Moruomu? It is to be able to tell what the son is thinking from his words, or what he is thinking. 70 million pieces, a year-on-year increase of 19.4%, and industry business volume continues to set new records. Looking at the employment situation, the number of new urban jobs from January to November 2023 was 11.8 million, an increase of 350,000 year-on-year. The gradual improvement in employment is relatively obvious. From the perspective of money supply, the balance of broad money supply (M2) and the stock of social financing will increase by 9.7% and 9.5% respectively year-on-year in 2023, maintaining rapid growth. Judging from the recovery of economic growth, my country’s GDP will exceed 126 trillion yuan in 2023, and China’s economy is performing well around the world. In 2024, my country will continue to introduce a series of policies to expand domestic demand, effectively increase consumption and investment willingness, and stabilize residents’ employment and income expectations. As the domestic economy gradually stabilizes and recovers, the increase in residents’ income and the expansion of employment will help further stimulate demand and become the most fundamental influencing factors for the overall price level to rise moderately and return to a reasonable level in the future.
In addition, the low base in 2023 will have an impact on the overall price level trend in the future. In 2023, my country’s industrial producer price index (PPI) will drop significantly and CPI will see weak year-on-year growth. High base constraints are also one of the important reasons. Unlike 2023, when prices face a high base, 2024 corresponds to a relatively low base in 2023, which will provide support for a slight rebound in inflation.
The long-term trend of stable operation has not changed
From a long-term perspective, the factors that determine the overall price level in my country and its long-term trend have not undergone fundamental changes, and there will be no Japanese-style long-term deflation.
First of all, the overall price level is a comprehensive expression of economic growth and income changes. According to estimates, the potential growth rate of China’s economy at this stage is about 5.5%-6.5%. As long as the economy maintains growth and macroeconomic policies remain stable, the overall price level will remain at a reasonable level.
Secondly, the supply of important commodities such as food and energy is still in a “tight balance”, providing support for long-term price stability. At present, my country’s grain production capacity continues to improve and has achieved the strategic food security requirements of “ensuring absolute food ration security and basic grain self-sufficiency”, but the overall supply and demand are still in a “tight balance” state. With the acceleration of industrialization and urbanization, residents’ food consumption structure will continue to upgrade, food demand may further increase, and the gap between supply and demand will also exist for a long time. Similar to food security, my country’s energy supply also has a demand gap problem. According to statistics, my country’s foreign dependence on crude oil will reach 71.2% in 2022, and its natural gas dependence on foreign countries will exceed 40%. The “tight balance” pattern of food and energy supply will provide important support for price formation.
Finally, the rise in service commodity prices will become an important factor affecting the overall price level in the future. In contrast to the “large quantity and low price” in the life service industry, the prices of service commodities such as elderly care and education have continued to rise.Go higher. In the composition of the CPI, the “other supplies and services” category includes two medium categories: “other supplies” and “other services”, as well as “other services”, “elderly care services”, “hotel accommodation”, “beauty salons and baths” and “financial services”. There are seven sub-categories: Insurance, “Other Miscellaneous Supplies” and “Jewelry and Watches”, each sub-category includes several sub-categories. Since other types of goods and services do not account for a high proportion in the CPI, their price trends have been ignored. In the context of an aging population and frequent seasonal diseases, medical care, elderly care and other services account for an increasing proportion of residents’ consumption, becoming an important factor influencing the rise in residents’ living costs. The impact of rising service commodity prices on the overall price level must be analyzed from both positive and negative aspects. On the one hand, rising prices of service commodities will help promote structural reforms on the supply side of service commodities, continuously enrich the types and quality of service commodities, and promote the improvement of residents’ welfare. On the other hand, the increase in the proportion of service goods in total expenditure may also increase the cost of living for residents, especially for low-income groups. The connection between the price trend of service commodities and CPI is an issue that needs to be focused on in the future.
Policy coordination helps expand domestic demand
Although the current low price trend has obvious phased characteristics, issues such as insufficient demand still require great attention. Since 2023, many important meetings of the Party Central Committee and the State Council have made important arrangements for this, releasing positive signals, managing expectations, and taking multiple measures to expand total social demand.
From the perspective of policy deployment, the focus is to promote consumption and expand investment. According to the historical trend of quarter-on-quarter data, the first and third quarters of each year are the peak periods of rising price levels. To this end, since 2023, various policies and measures have been introduced across the country to vigorously develop digital consumption, green consumption, healthy consumption, smart consumption and “domestic trendy product” consumption, and promote the upgrading of residents’ consumption. During the 2024 Spring Festival holiday, the number of tourists to key cultural and tourism attractions across the country reached 123 million, an increase of 22.8% compared with the same period in 2023; during the New Year Festival from January 18 to February 6, national online retail sales were close to 800 billion yuan, an increase of 22.8% from the same period in 2023. In the same period of the 2023 lunar calendar, the growth rate is 8.9%.
In 2024, my country’s macroeconomic policies will be further strengthened to provide a good policy environment for economic growth and price stability. In accordance with the deployment of the 2023 Central Economic Work Conference, fiscal, monetary, employment, industry, regional, science and technology, environmental protection and other policies will strengthen coordination and cooperation, and macro policies will be more flexible, appropriate, precise and effective. With the implementation of a series of policies and measures to stabilize investment, promote consumption, stabilize employment and stabilize expectations, China’s economic recovery will further consolidate, and the overall price level will gradually return to a reasonable level.
Focus on stabilizing expectations and promoting reform
Properly guiding investment and consumption in key areas is a solid foundation for stabilizing market expectations and promoting a reasonable recovery in the overall price level. At present, there are many new changes in the consumer field, and the sales of durable consumer goodsWith the gradual recovery, entertainment, tourism, sports events, etc. have become new consumption growth points. Investment in key areas across the country has maintained rapid growth, and investment in high-tech industries has become a new engine for economic growth. The smooth advancement of measures to stabilize expectations will further expand domestic demand and stabilize the economy, and will also lead to corresponding changes in the overall price level.
While paying attention to short-term fluctuations in the overall price level and stabilizing market expectations, it should also be noted that establishing a price policy system that adapts to the requirements of high-quality development is the focus of price work in the new era. In accordance with the spirit of the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China and the outline deployment of the country’s “14th Five-Year Plan”, my country’s overall goal of deepening the reform of the price mechanism is that by 2025, prices in competitive fields and links will be mainly determined by the market, and network-type natural monopolies will The scientific pricing mechanism for all aspects has been fully established, the energy resource price formation mechanism has been further improved, the price control mechanism for important people’s livelihood commodities has been further improved, public service pricing policies have been basically improved, and a price policy system that meets the requirements of high-quality development has been basically established. The realization of this goal will not only help remove obstacles to my country’s economic system reform, but will also better improve the cost compensation mechanism for important commodities such as resources, energy, and public services, laying the foundation for a gradual and moderate recovery in the overall price level.
(The author is the dean and researcher of the Institute of Financial Strategy, Chinese Academy of Social Sciences; the editorial director and associate researcher of “Finance and Trade Economics”)