Chinese Inflation Determinants Since 1978

This paper explores Chinese inflation determinants for the post-reform period. Given the Chinese economy’s complexity as the world biggest transition economy, the inflation pattern presents recurrent episodes of cyclical inflation surge and decline. And, there is an evident structural break point around 1997. Based on this finding, this paper then examined the inflation determinants for both pre-1997 and post-1997 periods. Each period include 4 cycles, as suggested by the movements of consumer price indexes (CPI). By examining inflation measures and each inflation cycle sources, we concluded that, the pre-1997 inflation cyclical movement is largely determined by excess aggregate demand measured by output gap and price liberalization served as an added factor while the post-1997 period inflation is mainly driven by the costs, especially food prices (both domestic and international food prices).