Since July 2005 launched the Renminbi exchange rate reform, the Renminbi appreciation has exceeded more than 20%. Experts believe that, although the exchange rate movements in a country’s price with driving effect, but in recent years, the reform on the real price impact on China’s policy is more limited, appreciation does not mean that imported prices will ease the pressure.
Appreciation may not curb inflation.
The exchange rate policy is an effective tool to adjust the domestic price level. China’s industrial sector accounted for a large proportion in the country’s economic structure, since industrial goods are basically tradable goods, the appreciation or depreciation of the exchange rate will directly affect the prices of industrial goods, the foreign exchange reform policy will affect the prices of most basic products. In addition, in recent years the price fluctuation is reflected more in food prices, while food prices are generally stable demand, but supply instability. In the short term, food prices are more affected by raw material costs, while commodity prices and commodity prices decide later, but two prices are subject to fluctuations of the exchange rate.
However, the experience of the latest round of price increases shows that China’s price level was more closely related to domestic aggregate demand, while imported over inflation was less affected. China’s CPI movements ahead of the latest PPI round showed that external price inflation pass-through is not the main factor, relying on the one-time Renminbi revaluation to resolve imported inflationary pressures is unreasonable.
Analysts pointed out that the appreciation in theory can reduce imported inflation, but this is not the power and reason for Renminbi appreciation, only as a result. In practice, the extent to which currency appreciation will curb inflation is inconclusive. For example, the yen in the past century appreciation history for a long time, 1985-1995, although the yen’s appreciation was rapid, but Japanese inflation did not have a downward trend, but gradually increased. This is related to the rapid growth of economic and domestic demand in Japan. This shows that whether the appreciation can ease the country’s inflationary pressures not only depends on the appreciation of the magnitude and time factors, but more importantly depends mainly on the international and domestic macroeconomics, liquidity situation, etc.
Another expert pointed out that in the traditional economic development process, changes in the interest rate on demand have the greatest impact. With the continuous improvement of China’s export-oriented economy, requiring more consideration on the exchange rate in the regulation of domestic demand and the rate of inflation. The exchange rate has a limited impact on the second half of the price.
China’s exchange rate appreciation won’t be big, it should be around 2%-3% or so. As the central bank’s “internal balance, external balance, financial market stability”, the three goals are still very obvious, coupled with the second half of our economy is in a downward trend. Under the exchange rate in a very small fluctuation situation, the exchange rate in the second half of China’s price is also very limited.
China’s CPI in June rose 2.9%, 0.2% less than last month. The expert said that at present China’s inflationary pressure has eased, but it has little to do with the appreciation of the Renminbi, but is more subject to domestic credit policy, real estate regulation and other factors.