Increased pressure on agricultural products raises inflation expectations

As the prices of agricultural products and wholesale prices of “vegetable basket” products continue to set a new record, the market’s inflation expectations for current China are increasing. Although inflation expectations and actual inflation are not the same thing, given the inflation expectations will continue to accumulate and promote the occurrence of inflation, it is imperative that the management of inflation expectations be strengthened.

As the recent wholesale price index of agricultural products and the wholesale price index of “vegetable basket” products continue to set records, the State Council promptly adopted measures to curb the irrational rise in the prices of agricultural products such as vegetables. Although inflation seems to be "controllable" only from fluctuations in CPI, this does not indicate that inflation expectations are also "controllable". On the contrary, the market is undergoing subtle changes in current inflation expectations in China.

Because, the current inflation expectations for China have already formed. First, China's stock market has entered a partial or structural bull market state. A-shares have risen more than 15% since July 2. Second, the current demand for deposits has become more apparent. In the first half of the year, newly increased current deposits reached 4.72 trillion yuan, fixed deposits reached 1.77 trillion yuan, current deposits accounted for 62% of new deposits, and the ratio for the same period in 2009 was 33.70%. Third, rapid liquidity chasing and investment in other capital products. The trend has already formed, leading to the rapid rise in the prices of agricultural products this year.

From the current point of view, China's inflation expectations are greatly affected by the spread of the international market. In particular, the Fed decided on August 10th to reinvest the expired mortgage securities it held back into the purchase of long-term US Treasury bonds, which formed the market expectation that the Fed will restart its easing monetary policy. As a result, the price fluctuations in the foreign exchange market and commodities (especially agricultural products) have a great impact.

Judging from the economic operating data in July, the space for China's monetary policy adjustment has been reopened. The M2 growth rate fell to 17.6% at the end of July, which is very close to the 17% control target line set at the beginning of the year. In this sense, the pressure on the central bank to tighten the money supply has been greatly reduced. In addition, under the background of a slowdown in economic growth, the market is generally expected to loosen macroeconomic policies and further increase inflation expectations.

Compared with inflation expectations last year, the current inflation expectations have the following three salient features:

First, the reasons for the differences are different. In April 2009, the economic data showed signs of a rebound, and various economic indicators were significantly better than expected. Based on the confidence and optimism of economic recovery, the recovery expectations were revised upwards. Coupled with loose monetary policy, inflation expectations were gradually strengthened. However, this inflationary expectation was formed when people lacked confidence in the real economy. It was merely seeking to preserve the value of assets or pursue the bid-ask spread of assets.

Second, the impact on the economy is different. Inflation expectations in the early stages of recovery, whether it is Keynes or Nobel Prize winner Krugman, see it as a positive factor to restore public investment and consumer confidence. In contrast, during the period of economic growth slowdown, inflation expectations will affect the real start of private investment and consumption, hinder the pace of economic recovery, and in serious cases will lead to economic "stagflation."

Third, the duration is different. Inflation expectations for 2009 are mainly exogenous, that is, boosted by a loose monetary environment and easing as the money and credit environment normalizes. The formation of inflation expectations has a strong endogenous nature and lasts for a long time. This time, the price increase of agricultural products is also structural, mainly concentrated on grains, vegetables, and fresh fruit. It is expected that the prices of these agricultural products will also increase.

Although inflation expectations are not the same as actual inflation, inflationary expectations will continue to accumulate and promote inflation, and the behavior of inflation expectations will also increase inflationary pressures. In the face of increasing complexity of current inflation expectations, we The management of inflation expectations should be strengthened from four aspects.

The first is to ease liquidity and guide funds to "structure" in the real economy. The focus of the next step should be to open up and broaden the flow of liquidity from the financial sector to the entity sector, such as stimulating and activating the credit market for SMEs, and introducing specific rules and measures for the emerging strategic industries and the new 36 as soon as possible to enhance investment. expected.

The second is to strengthen real estate regulation and control. Inflation expectations are always vented through the rise in the price of certain commodities. As real estate has multiple attributes such as investment and consumption, the steady price of real estate has a significant impact on continuing to guide inflation expectations. In this regard, we should continue to introduce more powerful policy measures to strengthen the regulation of house prices.

The third is to maintain the stability of monetary policy. In the current face of rising inflationary expectations due to price adjustments of agricultural products and resource products, we cannot simply adopt tight monetary policies. In particular, the slowdown in economic growth has led to no further tightening of monetary policy. Therefore, we should strengthen the regulation of the money supply and effectively guide inflation expectations. This is mainly reflected in the need to rationally adjust the credit structure and credit scale in advance.

Fourth, it is necessary to administer the rapid increase in prices of agricultural products, such as food prices and vegetable prices, that are related to ordinary people’s “vegetable baskets”. To some extent, one of the prerequisites for managing inflation expectations is to correctly understand the trend of China's agricultural product prices. In the process of industrialization and urbanization, the scarcity of resources and rising production costs will inevitably lead to the upward movement of prices of agricultural products and resources. Therefore, maintaining the basic stability of domestic agricultural product prices is mainly reflected in measures to control and control the market risks of agricultural products being hyped up, such as cracking down on collusion of price increases and prohibiting stocking.