The latest data released shows that in November this year, China's CPI increased by 0 year-on-year5%, which is the second consecutive month of negative growth, and the largest decline in recent years. It is worth noting that although the monetary aggregate increased by 22 trillion yuan, it did not cause inflation, but instead showed a negative growth in prices. This phenomenon challenges the traditional economic understanding of the relationship between inflation and currency issuance.
According to statistics, in January and November this year, the overall increase in China's CPI was only 03%, below the expected 2% growth target. While prices** imply increased purchasing power, this is not the case, and consumer demand is still not strong enough. This has left people confused and even more worried about whether they are facing the risk of deflation, i.e., a long-term decline in economic activity and sluggishness.
1. The impact of inflation expectations
Currency issuance usually triggers inflation, but this year the situation has changed. In addition to the aforementioned increase in monetary aggregates, the impact of inflation expectations needs to be taken into account. With China's economy showing a relatively stable recovery trend and the effectiveness of the most advanced macroeconomic control policies, the market's expectations for inflation are relatively low. This also means that despite the large increase in the amount of money, market expectations have not changed significantly, thus not triggering inflation.
2. The role of structural factors
In addition, the fact that the additional issuance of money did not trigger inflation may also be related to structural factors. In recent years, China's economic structure has been gradually optimized, and the upgrading of the consumer market and the supply-side reform are gradually playing a role. With the continuous advancement of scientific and technological innovation, productivity has been improved, and the stability control of prices has been further strengthened. In addition, the stable job market and the continuous increase in residents' incomes have also ensured the stability of domestic demand.
3. Weak investment and consumer demand
On the other hand, the additional issuance of money did not enter the real economy through consumption and investment channels. Despite the significant increase in the amount of money**, funds have not flowed fully due to weak consumer demand and low investment confidence. Especially under the consumption pressure brought about by the epidemic, most households are more inclined to save than consume, resulting in the purchasing power of money not being translated into real demand. In addition, the uncertainty of the future business environment on the corporate side has also suppressed the investment momentum.
4. The decline brought about by structural adjustment
Finally, from the supply side, China is promoting structural reforms, especially to reduce capacity, inventory, leverage and cost reduction. These regulatory measures have intensified supply-side reforms and suppressed prices by improving production efficiency and efficiency. For example, in the process of de-capacity, some industries with excess capacity are under pressure, and competition has intensified, resulting in the phenomenon of prices.
In the current situation, despite the huge scale of the additional currency issuance, it has not achieved the expected stimulus effect. This phenomenon shows that the unilateral stimulus effect of monetary and fiscal policies is limited, and it needs to be coordinated with supply-side reform and structural adjustment. At the same time, we also need to pay attention to the impact of inflation expectations and the improvement of the consumer investment environment to promote the sustained and healthy development of the economy.
In addition, the over-issuance of money did not trigger inflation, but it is also necessary to be vigilant against the risk of deflation. The impact of deflation on the economy cannot be ignored, which may lead to price expectations**, further weakening the momentum of consumption and investment, and forming a vicious circle. Therefore, it is necessary to comprehensively apply monetary and fiscal policies and adjust the intensity of policies in a timely manner to achieve the goal of economic growth and stability.
To sum up, although China's additional currency issuance of 22 trillion yuan has not caused inflation, the negative growth of CPI is closely related to the complexity of the economic situation. The stimulus effect of monetary policy is limited, and the impact of structural factors and inflation expectations also needs to be considered. In order to achieve healthy economic development, we need to continue to promote supply-side reform and structural adjustment on the basis of monetary policy, and strengthen the creation of a consumption and investment environment to promote steady economic growth.