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What Drives China's Food-Price Inflation and How does It Affect the Aggregate Inflation?

Author

Listed:
  • Wenlang Zhang

    (Research Department, Hong Kong Monetary Authority)

  • Daniel Law

    (Research Department, Hong Kong Monetary Authority)

Abstract

It is typically argued that China's food-price inflation has been mainly driven by supply-side shocks including natural disasters. Our research, however, shows that demand pressures have played a more important role from a medium-term perspective. This suggests surging food prices may call for policy reactions even if non-food-price inflation is tame. Meanwhile, we find food-price inflation has not generated significant second-round effects on non-food-price inflation. In particular, while food-price inflation has pushed up China's inflation expectations, it has not been an important determinant of wage growth. This situation may change as workers gain more bargaining power in wage setting in the medium term.

Suggested Citation

  • Wenlang Zhang & Daniel Law, 2010. "What Drives China's Food-Price Inflation and How does It Affect the Aggregate Inflation?," Working Papers 1006, Hong Kong Monetary Authority.
    • Handle: RePEc:hkg:wpaper:1006
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    File URL: http://www.hkma.gov.hk/media/eng/publication-and-research/research/working-papers/HKMAWP10_06_full.pdf
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    More about this item

    Keywords

    Demand Pressures; Expenditure Elasticity; Food-price Inflation; Supply-side Shocks; Aggregate Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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