China’s Current Inflation: Characteristics, Causes and Countermeasures

SU Jian

School of Economics, Peking University, China

Abstract: China’s current inflation differs from that of the 1980s. The Current inflation is being caused by factors from both the supply and demand sides, and should therefore be addressed from both sides as well. With a new policy analysis framework, we suggest that China now needs to adopt a policy combination of “supply expansion and demand tightening.” Demand tightening should mainly rely on the policy of quantitative monetary tightening, which specifically includes further tightening of capital controls and encouragement of outbound investment. Supply expansion should mainly rely on policies of tax cuts, Renminbi appreciation, reform, improvement of administration, and technological progress.

Keywords: stagflation, supply management, excess liquidity, AS-AD model

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