Under the influence of the turmoil in the Middle East and North Africa, the international oil price has skyrocketed and has exceeded the 100-dollar mark per barrel. If oil prices continue to remain high, according to the current domestic refined oil pricing mechanism, domestic refined oil prices may continue to rise in the future. Will the soaring oil price trigger a new round of imported inflation in China and how should China resolve this dilemma?
Input-led inflation exacerbates the Chinese economy. China, as the world's leading energy consumer, imports more than 50% of its crude oil. Customs statistics show that in January of this year, China’s crude oil imports amounted to 21.8 million tons, amounting to US$14.18 billion. Based on this calculation, this round of rising oil prices will undoubtedly increase China's energy costs, and China's imports of crude oil will cost about 50 million U.S. dollars each day.
"Excessive rise in oil prices will indeed lead to domestic input inflationary pressures. Cost-driven inflation is the most difficult to control and the most difficult to deal with." Lin Boqiang, director of the China Energy Economic Research Center at Xiamen University, told reporters that due to energy consumption The weights in the CPI are relatively small, and the direct impact of rising energy consumption on inflation is relatively small, but the indirect effects are more serious. Rising energy prices will drive up prices of other bulk commodities, leading to cost-driven inflation.
More users have given a simple logic chain of "China's economic inflation from oil prices": Gasoline and diesel prices have risen - Transportation costs have risen - Prices of supermarket goods have risen - Electricity, water and coal have risen - Production costs have risen - PetroChina and Sinopec profits Falling - Gasoline and diesel prices rise again...
In fact, the manufacturing industry feels the most real about cost pressures. A person in charge of a leather manufacturing company in Zhejiang told reporters that factors such as increased labor costs, rising raw material prices, and appreciation of the renminbi have great influence on these foreign trade companies in China.
Sun Lijian, a professor at the School of Economics at Fudan University, told reporters that China is an investment-led country. The direct and most significant impact of rising oil prices is mainly reflected in the increase in production costs and economic costs, which has led to rising prices. This also makes the country's monetary policy look very ambiguous, and input-type inflation is not in the category of monetary policy.
“Secondly, China is in the process of factor market reform and the desire to bring oil prices into line with the market. The continuous rise in oil prices poses a challenge to this reform. Rising oil prices may be positive for upstream resource companies, but for the overall national economy. It's not good," Sun Lijian pointed out.
The data shows that the current daily production capacity of the Organization of Petroleum Exporting Countries is 5 million barrels, which has been greatly increased compared with the 2008 international oil price surge. At the same time, global energy inventories amounted to 16 trillion barrels, enough for each economy to use it for two years without the extreme conditions of crude oil supply. Sun Lijian analyzed that the rise in international oil prices in this round and the over-exposure of international capital to oil prices are also one of the reasons. "The vast majority of Libya's crude oil is exported to Europe, and the overall market should not be short of oil. However, the unstable situation in North Africa has become a good 'story' for capital speculation."
Appreciation Hedging Advantage Prevention Advantages of Speculation It is worth mentioning that imported inflation has already been reflected in the domestic market through current indicators. According to the China Manufacturing Purchasing Managers' Index released by the China Federation of Logistics and Purchasing, the purchase price index in February reached 70.1%, up 0.8 percentage points from the previous month and rebounded for two consecutive months. Among them, the purchase price index for raw materials and energy, intermediate goods, and finished products for production is relatively high, reaching over 70%.
Lin Boqiang pointed out that if the political situation of the Middle East oil-producing countries is affected by Libya, the momentum of soaring oil prices will be even fiercer, and international oil prices may exceed 150 US dollars. The rise in oil prices this round can only wait for the solution of the problems in the Middle East and North Africa. It depends on the joint efforts of the international community.
Sun Lijian pointed out that in response to imported inflation, we must first reduce our dependence on external resources, start strategic reserve balances, replace individual foreign exchange reserves with reserves such as energy and materials, and build a diversified national reserve system. At the same time, we will open up ways to import production resources, find alternative sources of resources, accurately determine resource prices, and establish longer-term contracts.
“Actually, what is terrible is not inflation itself but inflation expectations. The tightening of monetary policy, the increase of negative interest rates, and the increasingly strong expectations of inflation will undermine investor confidence. In order to catch up with inflation, investors’ desire to invest in financial assets will continue to increase. "Sun Lijian pointed out that a large number of speculators kidnap oil prices, but with the stability of the situation in the Middle East and North Africa and due to global liquidity is rampant, the United States and Europe loose monetary policy ebb, oil prices will be suspended soaring, the spot market may usher in a sharp decline. "For a large number of financial capital to accumulate crude oil and dominate the spot market, the state should use effective measures to crack down on speculators."
For the industry’s hot-spot discussion, renminbi appreciation is used to ease inflationary pressures, and most experts say it is not desirable. Some analysts pointed out that the appreciation of the renminbi is not an effective way to reduce inflation. Because China's current exports are inflexible in exchange rate changes. On the other hand, although the appreciation of the renminbi can lead to an acceleration in the growth rate of general trade imports, the growth rate of imports of processing trade will decline. After the two offset, the total import will not change significantly. In this regard, Sun Lijian believes that hedging inflation with the appreciation of the renminbi is risky and cannot be easily used. Take Vietnamese dong as an example. Vietnam had previously intended to use currency appreciation to ease inflationary pressure. However, "The result is that oil prices have risen faster than money."
