Deflation: Policy Emphasis Is Not On Lowering Interest Rates And Lowering Interest Rates.

　　 The horror of deflation

In December 2014, CPI grew by 1.5% over the same period last year, a slight rebound compared to November, the lowest level in the past 60 months, and the core CPI excluding food and energy grew by 1.3% over the same period last year, unchanged from November, the lowest since 2013. PPI data is even more pessimistic. In December, PPI fell by 3.3% over the same period last year, a decline that has been widened compared to November, and has declined for 34 consecutive months.

From the most liberal definition, the price index has fallen for 3 consecutive months, which is seen as deflation. Judging from the price of industrial products, deflation has existed for a long time. Judging from the price of consumer goods, there is no deflation at present, but risk still exists.

From home Reform and Opening-up After the history, inflation control has always been the main line of macroeconomic regulation and control, and the situation of deflation prevention is rare. Combing all previous macro regulation and control, 1984~1988 controls inflation control, inflation control in 1993~1994, anti deflation regulation in 1998 (Asian financial crisis), inflation control in the first half of 2003~2008, deflation control in ~2009 in the second half of 2008, inflation control in 2010~2011, and prudent monetary policy since 2012. It can be seen that in addition to the two deflationary pressures triggered by the external financial crisis, several macroeconomic controls are mainly based on inflation control.

The Chinese people are familiar with inflation and do not have much experience in deflation. The fear of deflation is greater than inflation in the wake of Japan's "lost twenty years" after the bubble burst in the 90s of last century. As Freedman's famous saying, "inflation is a monetary phenomenon in the final analysis", as long as we can strictly control the increase in money, inflation can always be managed, but it is only a matter of cost. On the other side of the famous saying, "deflation is also a monetary phenomenon" does not hold water. The reason is that under the liquidity trap, deflation can not be solved only through money supply.

　　 Deflation The real scary thing is "no deflation". The reason why "no deflation" comes from the lack of social construction and development is that the demand here is not psychological, but at the psychological level, everyone wants to get better and better, but the practical level. It mainly depends on whether the society is pervaded by the culture of creating struggle, and the attitude of young people towards life. As far as China is concerned, on the one hand, monetary policy still has much room for maneuver, and more importantly, there is still much room for development in the country. The government and the public can not tolerate the stagnation of social development and construction. Deflation may occur, but it will not last.

　　 Lowering interest rates Is it possible?

PPI continued deflation did not effectively transmit to CPI, because of the differences in the structure of the two: PPI in terms of measuring production prices, the weight of production data is as high as 76.27%, the weight of living data is only 23.73%, and CPI pays attention to daily consumption, including 1/3 of food weight, 1/3 of residential and entertainment education culture, and 1/3 of which are traffic and communication, health care, clothing, household equipment and tobacco and alcohol. As far as index change is concerned, the impact of food price changes on CPI is more than 50%, and the weight of fresh fruits, fresh vegetables and pork in food is relatively high. This is an important reason why the CPI index change is dubbed "pig cycle".

Deflation of PPI can be explained by the excess supply capacity and the relative downturn in demand. It is highly correlated with the real economy. CPI is mainly affected by agriculture. Although there are periodic fluctuations in agriculture, there is no problem of excess capacity in supply, there is rigidity in demand, and food prices will not be depressed for a long time. The continuous decline of CPI itself is very difficult. Since the reform and opening up, there have been two times, and the duration is not long. As far as our current situation is concerned, the possibility of deflation from the perspective of CPI is not large in the short term.

China's industrial products sector has long been in fact deflated. Deflation of PPI is accelerating the survival of the fittest and transformation and upgrading of China's manufacturing industry while reducing the gross profit of industrial enterprises. In my opinion, it may even be more advantageous than disadvantages. Deflation is too much, and macroeconomic policymakers are trying to maintain some balance. They are supported by measures such as decentralization, tax reduction and so on, so that most industrial enterprises are not living well but not hopeless. In this way, the power of transformation and innovation can be maximally stimulated.

In terms of the real economy, difficulties do exist. If the central bank's easing policy can really relieve the pressure on the real economy, it is understandable. At present, the thirst for the real economy is still mainly dependent on bank credit. The bottleneck for banks to lend to the real economy is not the shortage of loanable funds. Rather, under the adverse trend of development, the pressure of bank risk control is stronger than the pressure of business development, and the lending power is insufficient.

To alleviate the financing difficulties of the real economy, we need to start from alleviating the bad pressure of banks. Asset securitization, improving bad tolerance and accelerating the rate of bad disposal are all effective. If the bad pressure of banks has not been fundamentally alleviated, the monetary easing brought about by the reduction of interest rates will be more likely to be speculative rather than the real economy. This is also the logic of the real economy's financing costs not rising and falling unexpectedly after the central bank cut interest rates in November 2014, but "unexpectedly" opened the A bull market.

China has little chance of falling into real deflation, and from the angle of relieving the financing pressure of manufacturing industry, the key point of policy should not be put on the reduction of interest rates.