Inflation on the analysis of the impact of China's capital market

Abstract: China's first quarter consumer price index (CPI) was 5.0%, rising commodity prices continued depreciation of the currency, although China is still in the moderate-style inflation, but this inflation will continue in the evolution of the "flying Ben-style inflation ", and thus will affect the volatility of the stock market and sustained severe shock, therefore, inflation for China's capital markets has far-reaching impact. article from the definition of inflation began by describing the current situation and China's inflation the evolution of inflation, to study the inflation impact on capital markets.

Keywords: inflation on the capital market index

First, how to define inflation
Inflation is actually in the hands of the currency depreciation, required for our daily food, vegetables and other core commodities are constantly rising in the usual life unknowingly feel in the hands of money is worthless. Our country has been to control inflation inflation, stable price level as the central bank's most important economic policy model. central bank vice governor Yi Gang had publicly said, "inflation is the central bank's enemies." inflation (Inflation) refers to the notes in circulation conditions, due to currency real money supply greater than demand, which is the real purchasing power is greater than the supply of real output, leading to currency devaluation, which led to a period of time all kinds of commodities prices continued to rise and widespread phenomenon. its essence is the total social demand in the total social supply. China is still in the moderate inflation, but must be vigilant to prevent its further evolution and development to the deterioration of the scene.

Second, the status quo of China's inflation
The first quarter of 2011, China's economic data just released, in a quarter, CPI (consumer price index reached 5.0%, of which the city rose 4.9% in rural areas rose 5.5 percent. Categories, rose 11.0% food, tobacco and goods rose 2.0 percent, clothing up 0.3%, household equipment and maintenance services rose 1.6%, health care and personal articles increased 3.1 percent, transportation and communications dropped 0.1%, entertainment and educational products and services rose 0.6%, housing rose 6.5% Meanwhile, the current one-year deposit rate reached 3.25%. The publication of the data, the food is still the cause CPI (consumer price index up the main driving force, addition is the rate of increase is still living large in order to further control the total money volume, the central bank on April 21 this year, once again raising the deposit reserve ratio by 0.5 percentage points, interest rates and other measures will follow, but to curb inflation, the central bank's measures have a strong lag, with the economic terms said that the "viscous", inflation is unlikely to reverse the short term, Chinese economic growth will support the domestic stock market stability and steady upward commodity futures markets, medium-term upward pattern will continue. inflationary pressure further increases, investors will be more Choose high-risk high-yield investment products, the stock market and commodities market is good, I personally think that the stock market short-term the market will continue to be adjusted upward trend.

Third, the "moderate-style inflation" is likely to evolve into "flying-style inflation"
(A) factors affecting domestic
In recent years, China's loose monetary policy has been based in 1999, M2 is 9 trillion nationwide in 2010 is 72 trillion, nearly equal to China's 2010 GDP (39 trillion times, in addition, from 2008 , the continued implementation of monetary policy easing in 2009, China's 9.59 trillion of new loans in 2010 to 8.36 trillion at the same time, China launched four-trillion national investment in infrastructure such as railways, highways, airport infrastructure is still continues to build among the latter will further append the appropriate matching funds, therefore, our society in recent years to put a lot of money.

(B) factors affecting the international
Among the many factors, the most important is the result of U.S. monetary policy because of China's foreign trade surplus of several hundred billion dollars, 80% from the United States, if a change in U.S. monetary policy, China will have a great the impact of the Federal Reserve in November 2010 launched a second round of quantitative easing monetary policy, the implementation of the policy, the purpose of a strong, first and foremost to promote the steady recovery in the U.S. economy, a liberal policy on the United States to reduce the liquidity crunch adverse impact on the real economy, on the economic downturn played a role in curbing, and secondly, to reduce unemployment, easing the implementation of the United States will increase investment and consumer spending confidence, ease the unemployment problem can be good again, you can shift domestic economic crisis, the United States through quantitative easing monetary policy makes the U.S. dollar, the U.S. goods more competitive in the country, weakening the competitive advantage of foreign goods for the U.S. manufacturing sector to create space.

Fourth, the impact of inflation on the capital market
Inflation and the stock market ups and downs of 2003-2006 from the end of 2003, China's consumer price index continued to rise, from December, CPI reached 3.1 percent, in June 2004 rose more than 5%, but because of our timely macro-control policy, after November 2004 there have been significant price drop. 2003, China's local stock market bull market began, the market showed volatility trend from 2004 to January 30 to April 30, 2005, the market experienced a wave down market. The reason is that on 31 January issued a "National nine": <<State Council on the promotion of capital market reform and stable development of a number of views>> and the 2004 high-level personnel changes during the Commission and several domestic Big brokerage liquidation, all the stock market downturn. From April 2005, China's stock market has entered an unprecedented bull market. The market began in the China Securities Regulatory Commission April 30, 2005 release <<split share companies listed on the reform issues related to notice>> , stock market, began to start to change, have introduced a variety of good news, but, along with the appreciation of the yuan, the country continues to improve macroeconomic fundamentals such as positive news, the Shanghai Composite Index continued to rise, as of October 2007, Shanghai Integrated those that have reached 6124 points. 2006 CPI increase of 1.5%, CPI up 4.8% in 2007, 2008, CPI increased by 5.9% since October 2007, the Shanghai Composite Index from 6124 points in one year time jump back to the 1664 stock In 2009 CPI growth -0.7% in October 2008, the Shanghai Composite Index rose from 1664 points to 2009 points in August 3478. Links to free download http://www.hi138.com
Through the above analysis we can see that inflation there is negative impact on China's stock market, the consumer price index (CPI continues to rise will make the stock fell, the state has adopted the role of monetary policy will be in the stock market, so stock fluctuate. On the one hand, market will lead to the country's current macroeconomic policies issued to a certain response on the other hand, the market will be based on appropriate policies for the future expectations, the end result will reflect the trend in the stock index, the inflation expected by the market economy conduction path is well verified, the incidence of inflation usually affects the future of economic agents confidence in the economy and loss of confidence will be immediately reflected in the stock market, resulting in obvious bad mood and behavior.


References:
[1] Hsieh three. Defuse inflationary pressures, the stock market's 13 recommendations to improve the Shanghai Securities News, 22 November .2010
[2] Lei Mingguo. Inflation, stock returns and monetary policy [D] CASS Graduate School dissertations, 2003
[3] Liu Zhongjiang the stock returns and inflation relationship [J] quest, 2008 (3) Links to free download http://www.hi138.com