SOLVING THE PUZZLE OF CHINA’S LOW INFLATION: A NEW PERSPECTIVE FROM SECTORAL CORE INFLATION FLUCTUATIONS
通过构建MUCSVO模型，从部门视角揭示中国长期低通胀的成因，发现部门通胀波动的对冲效应是主因，并指出通胀矛盾已从食品和居住转向医疗保健，对关注中国通胀和低收入群体福利的学者有参考价值。
China’s constantly rapid economic growth accompanying by a low overall inflation has long been mysterious in macroeconomics. The core purpose of this paper is to solve this puzzle. Therefore, we integrate overdetermined set of equations into a MUCSVO model to explore the volatility mechanism of the overall inflation from a sectoral perspective. Our key findings include: 1) the hedging effect of sectoral inflation fluctuations principally accounts for China’s long-run stable overall inflation; 2) the main contradiction of China’s inflation has been shifting from high price levels in the traditional food and residence categories to rising prices in the health care category; 3) as the proportions of inflation in the food and residence categories fall steadily, sectoral inflation weights become more evenly distributed. In conclusion, China’s overall inflation and deflation will be much less likely to occur, while inflation is still of sectoral imbalance. Unusual price fluctuations in the food and health care categories, which are highly relevant to basic living standards of the low-income group, deserve close attention in particular. Overall, besides solving the puzzle of China’s low inflation, our model is applicable to economies that do not publish inflation weights, which is a useful extension of core inflation measurement.