The Long-term Challenge of Global Inflation and the Macroeconomic Effect of E-commerce Development in China
Source: CBN
The Long-term Challenge of Global Inflation and the Macroeconomic Effect of E-commerce Development in China
Author: Mei Xinyu
[In macroeconomic regulation and control, in addition to the traditional macroeconomic policy tools, we need to focus on innovation, pay enough attention to the development of new technologies such as IT and related industries, and actively and steadily explore the potential of using new technologies and industries to improve macroeconomic stability. ]
What does high inflation mean to a country’s social stability and economic development?
Inflation: Key words of world economy in 2021
At the beginning of the new year, the price increase of liquefied petroleum gas (LPG) in Kazakhstan suddenly set off a national turmoil, which once again provided a profound lesson to the world, because the inflation rate in Kazakhstan has been high for many years. The default monetary policy adjustment line of western central banks for many years is the annual inflation rate of 2%, but even in relatively good years, Kazakhstan’s inflation rate is usually about three times that of the above adjustment line. From 2013 to 2020, the year-on-year increase of CPI (Consumer Price Index) in Kazakhstan was 5.8%, 6.7%, 6.7%, 14.6%, 7.4%, 6.0%, 5.2% and 6.8%, and it is expected to be 7.5% in 2021.
Turning our eyes to Turkey, which is the junction of Europe and Asia, this once-favored country’s "three kills" in the stock exchange bond market is equally thrilling.
On December 28th last year, the Turkish financial supervision department announced that it would file criminal proceedings against more than 20 people, including former central bank governors, economists and journalists, who were accused of "manipulating" the exchange rate, which led to the Turkish currency crisis.
On December 29th, 2021, the Turkish central bank announced the monetary and exchange rate policy for 2022, saying that it would maintain the inflation target of 5% and the floating exchange rate system unchanged.
We witnessed the soaring inflation in Turkey, and the inflation rate in November 2021 was as high as 21.31%. We have experienced the "three kills" in Turkey’s stock exchange and bond market several times in one year. The exchange rate of lira against the US dollar was halved in just two months from October to December last year, and the three-month volatility reached the highest level since the statistics in October 1999. Under the pressure of runaway inflation, currency exchange rate and balance of payments crisis interweaving and promoting each other, the per capita GDP climbed to the peak of 9,647 US dollars in 2017, and is expected to drop to around 5,000 US dollars in 2021, which is almost halved compared with the peak. In just four or five years, Turkey has provided the world with a typical case of falling into the middle-income trap.
Not only Turkey, but also in the surge of global inflation since the third quarter of 2020, from the number one developed country, the United States, to the quasi-newly industrialized countries, and then to sub-Saharan Africa, almost no country can be immune to it, and a group of countries that have been widely valued are struggling to survive in the vicious circle of inflation, currency exchange rate and balance of payments crisis:
Among the BRICs countries (Brazil, Russian, Indian, China and South Africa, abbreviated as "BRICS"), the year-on-year increase of CPI in Brazil exceeded 9.0% in July 2021 and 10.0% in September, reaching 10.3%. The year-on-year increase of CPI in South Africa exceeded 8.0% in September 2021. Among the five countries (Vietnam, Indonesia, South Africa, Turkey and Argentina, abbreviated as "Vista") listed by The Economist magazine in Japan, Argentina’s inflation rate in the past 12 months is as high as 52%, and the new inflation target for 2022 proposed by the Argentine Ministry of Economic Affairs is still as high as 33% … The high inflationary pressure has pushed one emerging market after another, which was once optimistic, into a dilemma in macroeconomic policy. In addition to the most dramatic and most eye-catching "three kills" in Turkey’s stock exchange bond market, the exchange rates of many emerging market currencies such as the Brazilian real against the US dollar halved during the year. Under the pressure of runaway inflation and the resulting crisis, we have heard the voices of one emerging market after another, and these countries are almost helpless about it.
Not only developing countries, but also developed countries in the United States and Europe, the inflation index in 2021 has almost completely and significantly exceeded the default monetary policy adjustment line of western central banks for many years-the inflation rate is 2%, which has repeatedly set a historical record of ten or decades.
The year-on-year increase of CPI in the United States has been hovering in the range of 1.2%~2.4% from 2017 to 2020, reaching 6.8% in November 2021, the highest level in 39 years since June 1982; It further rose to 7% in December.
The year-on-year increase of CPI in the Eurozone hovered between 0.3% and 1.8% from 2017 to 2020, and reached 4.9% in November 2021. Its PPI (producer price index) rose as high as 21.9% year-on-year, which indicates that the pressure of CPI rising continuously in the euro zone in the future cannot be underestimated. By December, the year-on-year increase of seasonally unadjusted CPI in the euro zone further rose to 5%, exceeding market expectations and reaching a new high since 1991.
The year-on-year increase of CPI in Britain hovered between 0.9% and 2.6% from 2017 to 2020, and reached 5.1% in November 2021, the highest in ten years since September 2011. In December 2021, it further rose to 5.4%, the highest level in nearly 30 years since March 1992.
Even for the top economic students like China, the inflationary pressure is far less significant than that in other countries, and the inflationary pressure imported from outside will inevitably be gradually transmitted to CPI through PPI. As far as the whole year is concerned, in 2021, China’s CPI increased by 0.9% and PPI increased by 11.0% year-on-year, which is excellent compared with major western countries, but the trend of CPI year-on-year increase is still alarming. In September 2021, the year-on-year increase of CPI still stayed at 0.7%, and it has risen to 2.3% in November; In November, the year-on-year increase of PPI was as high as 12.9%. Although the year-on-year growth rates of CPI and PPI dropped to 1.5% and 10.3% respectively in December, the potential pressure can not be ignored. At the end of the year and the beginning of the year, the country began to speed up the pace of relaxing fiscal and monetary policies in order to stabilize growth. One of its potential side effects is that it may increase inflationary pressure.
Dealing with inflation is a long-term challenge.
What is even more worrying is that since the PPI of major economies is significantly higher than CPI, it is expected that inflationary pressure will remain for some time in 2022. Although the Fed’s shift to tightening monetary policy has been rampant in the international financial market, if this change occurs and lasts for enough time, it is expected to reduce the pressure of imported inflation in China from several aspects.
The tightening of monetary policy by major western central banks, such as the Federal Reserve, will curb the rise of the international primary product market, and may even lead to its decline and collapse, thus helping to curb the imported inflationary pressure of China, the world’s largest consumer and importer of primary products.
Major western central banks, such as the Federal Reserve, tighten monetary policy, and the excessive liquidity in the international financial market will decrease, and the hot money that overflows into China and the excess liquidity and inflationary pressure caused by it will correspondingly decline.
However, due to a series of reasons, the inflationary pressure can’t disappear in the world in 2022, and many market participants at home and abroad are worried that the world economy will repeat the "stagflation" mistakes of the West in the 1970s.
The tightening of monetary policy by major western central banks, such as the Federal Reserve, will lead to the overall decline of the commodity market and the reversal of international capital flows, which is likely to detonate economic, monetary and financial crises in a number of developing countries, especially those that are highly dependent on the commodity industry. In the case of the avalanche depreciation of the local currency exchange rate, the tightening of monetary policy by the Federal Reserve in these countries triggered not a reduction in inflationary pressure, but a surge in imports denominated in local currency and more intense inflationary pressure.
In 2022, there is still a high degree of uncertainty in the US economy, and it is also a mid-term election year in the United States. Under the circumstances that the domestic political confrontation in the United States is extreme and the independence of the central bank has been seriously eroded in recent years, how long the Fed’s tightening of monetary policy can last is a big question mark. It is not inconceivable that the Federal Reserve’s monetary policy will take a sharp turn from tightening to loosening in 2022.
China’s continuous relaxation of fiscal and monetary policies for steady growth will offset the "inflation suppression" effect of the Fed’s tightening of monetary policy to some extent, and may even be more than enough.
Among the major primary products, the global major energy companies generally lack investment and the supply of new capacity is weak in 2021 due to the forced reduction of carbon. The New Year riots in Kazakhstan may lead to the suspension of energy price subsidies in many countries, which may lead to high energy waste. In addition, the eruption of Tonga volcano may lead to global cooling and increase energy consumption demand this year, and energy prices have a high probability of staying high or even rising against the trend this year.
In view of this, curbing inflation remains an important theme of the global economy in 2022.
From a longer time span, inflation has been a chronic disease in human social and economic life for thousands of years. The monetary standard has changed from precious metal standard to credit currency, and the so-called "modern monetary theory" is popular in the West, which means that the potential inflationary pressure in the international market will remain high for quite some time. As far as China is concerned, it has been in a great change for a hundred years, and for a long time to come, all kinds of unexpected or unexpected "black swan" and "grey rhinoceros" incidents will bring huge inflationary pressure to the domestic market, so we must keep a calm and sober understanding of this; It is a long-term challenge for us to cope with the potential and realistic inflationary pressure.
The mechanism of e-commerce development to curb inflation
Curb inflationary pressure, and the plan will come out?
From the root point of view, the essence of inflation is that too much money chases too few goods. Therefore, managing the "leader" of fiscal and monetary policies is the most crucial to control inflation. In addition, a more active and positive way to the long-term economic and social development is to combine the suppression of inflation with the promotion of innovation. Through the progress of technology and organization, the development of new products and new formats, the efficiency will be improved in all aspects of production and circulation, and the loss and waste will be reduced, which will also help to curb inflationary pressure. E-commerce is just such a tool, and it has initially shown its potential in this respect. In recent years, the phenomenon that China’s PPI is higher than that of the United States and CPI is lower than that of the United States is the result of the development of e-commerce.
By analyzing the difference of PPI and CPI between China and the United States, it can be seen that in recent years, in the years with high inflation pressure, China’s PPI is higher than that of the United States and CPI is lower than that of the United States, which leads to the difference between China’s PPI and CPI being obviously greater than the same index in the United States in the years with high inflation pressure, which shows that the circulation link in China is more efficient and the cost is lower, and a large part of the pressure of higher PPI is resolved in the circulation link, and not all of it is transmitted to the end consumers. This is partly due to the developed e-commerce in China.
Theoretically, through the following mechanisms, e-commerce helps to improve the efficiency of circulation links and reduce costs, thus curbing inflationary pressures:
First, e-commerce can reduce the cost of circulation links and the loss caused by too many circulation links by reducing circulation links and even realizing direct access from factories to consumers and fields to consumers (M2C direct supply mode); Second, through storage facilities at relatively remote addresses, compared with physical stores that have to choose downtown and bear expensive rent and land price, e-commerce can save a lot of rent and land price costs that must eventually be apportioned to the price of goods; Third, through more and more large-scale e-commerce platforms, suppliers can share warehousing, sorting and other services, thus saving related costs; Fourth, by reducing the ineffective time and cost of waiting for customers in physical stores, e-commerce customer service and courier work is usually more full and labor productivity is higher than that of physical store clerks.
The above-mentioned mechanism should have a sensible macroeconomic effect on inflation, provided that e-commerce has already accounted for a large enough share in the whole economic activities; From a realistic point of view, the scale of e-commerce in China should have crossed the threshold of producing sensible macroeconomic effects.
Looking at the economic and industrial development of China in the first 20 years of this century, e-commerce is one of the greatest achievements. In a short time, e-commerce has grown from an externally imported concept to one of the important "growth poles" of China’s economy and industry, and it is also an advantageous industry in international competition, and it is expected to become a platform for attracting external markets to connect with China, thus exporting China standards and China rules to the outside world. In the past two years, China has implemented a series of anti-monopoly and other rectification measures in the field of e-commerce in order to regulate the market order. From the practical situation, these rectification measures have not dampened the vitality and development momentum of the Internet industry as a whole. The newly launched large-scale e-commerce platform has still achieved rapid growth that cannot be achieved in other countries, and the online sales scale has still maintained a double-digit growth rate.
From the innovation and evolution of e-commerce format, after the general retail e-commerce platform has developed to the world’s leading level, the specialized M2C direct power supplier platform began to emerge and achieved rapid development. Other things being equal, the cost reduction effect of the specialized M2C direct power supplier platform is higher than that of the general e-commerce platform.
Judging from the overall scale of online sales, China’s consumption growth leads the world’s big countries, and online sales growth leads domestic sales. This trend has been going on for many years and is expected to continue for quite some time in the foreseeable future. China Statistical Yearbook and China Statistical Abstract of the National Bureau of Statistics have been included in online retail statistics since 2015, and the data development from 2015 to 2021 fully shows this trend:
In 2015, the total retail sales of consumer goods in China was 28,658.78 billion yuan, a year-on-year increase of 10.4%; Among them, the online retail sales amounted to 3,877.32 billion yuan, equivalent to 5.66% of the nominal GDP(685571.2 billion yuan) calculated at the current price, accounting for 13.5% of the total retail sales of social consumer goods, with a year-on-year increase of 33.3%.
In 2021, the total retail sales of consumer goods in China totaled 44,082.3 billion yuan, a year-on-year increase of 12.5%; Among them, the online retail sales amounted to 13,088.4 billion yuan, equivalent to 11.44% of the nominal GDP (preliminary accounting value of 114,367 billion yuan), accounting for 29.7% of the total retail sales of social consumer goods, up 14.1% year-on-year.
To sum up, in the past two or three years, the retail sales of e-commerce has accounted for about 11% of GDP and 30% of the total retail sales of social consumer goods. This scale is enough to have an observable impact on the macroeconomic operation of China, including inflation. For our macro-economic management, besides the traditional macro-economic policy tools, we need to focus on innovation, pay enough attention to the development of new technologies such as IT and related industries, and actively and steadily explore the potential of using new technologies and industries to improve macro-economic stability; From direct power suppliers to pre-cooked dishes, the innovation of formats and products has begun to show its potential to cope with and hedge the impact of inflation. The impact of the SARS epidemic in 2003 objectively promoted the development of China’s nascent e-commerce industry, so that today’s China is already far ahead of the world’s largest e-commerce country; Today, as long as we deal with it properly, the impact of COVID-19 epidemic can also be an opportunity for China’s economic and industrial "creative destruction" to accelerate.
(The author is a researcher at the Research Institute of the Ministry of Commerce, and this article only represents personal opinions.)