Abstract: With the development and structural transformation of the Chinese economy, it is increasingly difficult to explain the divergence of inflation between different sectors using aggregate data. This paper studies the CPI/PPI dynamics as a typical measure of structural inflation in China. Based on the AS-AD framework, we find that on supply side the relative high productivity growth in the tradable sector can explain the CPI/PPI dynamics very well. On the demand side, government expenditure, household income and monetary factors can be important contributors to CPI/PPI differentials. In addition, we find that shocks to commodity prices affect structural inflation. One policy implication is that achieving the goal of price stability requires coordination between monetary policy and other supply side measures.
Full report :A Study of China’s Structural Inflation Measured by CPI/PPI Dynamics.pdf
