The Fall Of CPI Did Cause The Market'S Concern About Deflation.

In terms of the form of economic operation, economic fluctuation generally refers to the short period fluctuation of the stable wavelength, which is formed around the potential growth rate of the economy.

Under the assumption that the debt crisis does not materiality, there is no foundation for economic growth to stay below the potential growth rate for a long time.

Therefore, price fluctuation will always allocate resources continuously and evenly, so that the economy will become full employment in the long run.

Obviously, from the employment data, China is still far from the risk of deflation.

One proof is that deflation often means downward fluctuations in the short cycle of the economy. According to interest rates and prices, which are important factors in the short period of self balancing, if monetary policy reduces interest rates or prices fall to a low enough level, deflation can generally come out quickly.

But a phenomenon in recent years is that the sensitivity of economic trend to monetary policy is obviously insensitive. In 2012 and 2014, monetary policy has been remarkably loose, but the economy has not been significantly stimulated.

Therefore, the decline of potential growth rate may explain the phenomenon of gradual economic decline.

The market believes that information is valid and believes that information is not symmetrical. This leads to the inference that there must be some factors that are unknowable but seriously affecting the market, which will remind people of "deflation".

But the macro data show that the industrial added value has dropped 4% rapidly in the first quarter of this year, and after the second half of the year, the industrial added value has been steady near 6%. Why is the "deflation" much more worrying than the first half? Maybe it can be explained that the bull market in the first half of the year has made the market's imagination bursting, and the market's "brain subsidy" for the economic reform has covered the fact that the economy has been falling short term.

The second reason is eyeball rule.

The so-called eyeball rule is that the market pays more attention to the iconic events than the trend itself.

6.04 depreciated to 6.26, but until the RMB exchange rate continued to devalue 5% in mid August, the market exclaimed that "the era of RMB depreciation has arrived". Since the last round of inflation, the growth rate of foreign exchange has continued to decline, until the growth rate of foreign exchange has fallen below 0 (normal negative growth), and even the scale of foreign exchange occupancy in the three quarter has continued to break through the historical high. The market is worried about the negative impact of foreign exchange occupation. Of course, the economic trend is also the case. There is a strict linear relationship between market anxiety and the trend of economic indicators or asset prices. Even Kuznets's "inverted U hypothesis" can be used to explain this phenomenon. For example, since the beginning of the QE withdrawal from the United States (the four quarter of 2013), the RMB exchange rate has changed from

Then, is it true?

Before we talk about deflation, we must first know what deflation is. According to the definition of economics, deflation must be made up of three factors: prices continue to decline, money supply continues to decline, and effective demand is insufficient.

Simply linking these three points, we can infer that deflation is an economic phenomenon caused by the decline in purchasing power.

But is there really a lack of purchasing power?

Let's look at these two phenomena first.

The first phenomenon is that after the 2008 crisis, China's economy has been on the track of a long downward trend, and the GDP growth rate has dropped from 12% to about 7%.

But at the same time, the employment situation is strong at this stage, and the rate of seeking labour in the labor market has risen from the trend of 0.85 in 2009 to the current level of 1.06, and this data has recently formed the highest position in the 15 years. If we estimate the employment situation of the city with the total number of urban employment / town population, we can draw a similar conclusion that the ratio has risen to 24.4% in 2014, the highest level since 2000.

The second phenomenon is: in the week before the CPI data released in September, Chinese tourists "captured" the Japanese market, the India market, the European market and other markets during the eleven long holiday.

From these two examples, we can see that employment is no problem and purchasing power is not a problem.

It should be noted that the decline in the size of the workforce caused by the gradual disappearance of the demographic dividend does not have much impact on consumption.

After the second round of population boom, another peak of China's population growth rate occurred in 1987. If we assume that most people will grow into labor force after completion of undergraduate or postgraduate education, the age of the formation of the urban labor force should be between 22-24 years old, from 1987, and 2009 to 2011 is exactly the turning point of China's economy facing labor shocks.

On the other hand, the development of heavy chemical industry and urban and rural areas in China in the 90s of last century

Many farmers become the "labor force" of the city, which has added a wave of special labor force to the first round of urbanization in China.

However, at present, the demographic dividend of this round of cities is also close to completion. First, the proportion of the employment of the primary industry announced by the Statistics Bureau has dropped rapidly from the early liberation 84% to the current 29% position; two, after incomplete statistics, the left behind farmers are mostly farmers with a long age and lack of labor capacity of other types of work.

However, although the labor force is declining, labor structure and consumption habits have also changed a lot. The demographic dividend will not bring about a recession.

Although the scale effect of China's economy is diminishing marginally, labor force has higher negotiating capital when negotiating with employers.

Therefore, the price of labor capital also occupies a higher proportion in the profit sharing.