Recently released the CMF China macroeconomic analysis and forecasting report (in the first quarter of 2022) focus on the "global" inflation, and points out that the expansion of fiscal and monetary policy in developed countries around the world is the necessary condition to cause this inflation, caused by supply chain restructuring and geopolitical conflict commodity supply shortage is the cause for this inflation. And a retreat from globalisation would be counterproductive to inflation. Although inflation is not strictly established in China in general, in the face of international inflation, China needs to adopt more aggressive and expansionary fiscal and monetary policies while domestic consumer price index (CPI) is at a moderate level to achieve stable economic operation.

"This inflation has very clear structural characteristics, reflected in different types of inflation in different countries are different." Among developed countries, producer price indices and CPI have risen rapidly in almost all developed countries except Japan, the report noted. In developing countries that rely on commodity exports, CPI is not much higher than before, and PPI will decline in 2021 compared with developed countries.

In its analysis of the impact of global supply chain restructuring on the current bout of international inflation, the report notes that the factors that triggered or exacerbated the current bout of inflation predate the Trump administration. With the outbreak and spread of the pandemic, inflation became fully visible under the impact of supply chain restructuring in the face of global demand shocks.

On the one hand, the shortage of containers has become an important bottleneck restricting global transportation capacity. After the outbreak, the labor force participation rate in developed countries fell off a cliff. Even after nearly two years of recovery, the labor force participation rate in developed countries still lags far behind that before the epidemic. Labor shortage combined with container shortage has become an important factor affecting the rise of PPI in developed countries. On the other hand, the chip industry has been the epicenter of global supply chain disruption, which has contributed to this round of inflation. One is that the global demand for chips for medical supplies surged after the outbreak of the epidemic, crowding out the supply of chips for other industries. Secondly, producers' lack of expectation for the recovery of commodity demand brought by the global economic recovery leads to the decoupling of supply and demand, which also aggravates the problem of chip supply chain fracture to a certain extent.

Before the outbreak, the global production network was already undergoing slow adjustment as the global trading system was restructured and trade frictions occurred. Production of many goods with high production and labor costs began to migrate to parts of Southeast Asia. Affected by trade frictions, the production of high value-added goods began to return to developed countries, which made the global production network in a relatively unstable state for a long time. In this context, the production network is difficult to cope with the impact of rising demand.

To address structural problems such as hollowing out domestic industries, declining manufacturing competitiveness and rising unemployment, major developed economies have accelerated their "re-industrialization" strategy in recent years. For the purpose of safeguarding national economy and national security, western countries led by the United States have intensified their attention to supply chain security under the pretext of dealing with the epidemic. In addition, in order to maintain the hierarchical order of the traditional supply system and the dominance of western countries, developed countries have formulated competitive strategies to ensure the advantages of international division of labor, started the artificial adjustment of supply chains, increased production costs, and injected uncertainties into the global economic development.

In this round of inflation, the disharmony between supply and demand, significant destocking, the impact of the epidemic on transportation networks and loose fiscal and monetary policies of developed countries all promoted the rapid rise of commodity prices, which were transmitted to different countries and regions through trade channels and further stimulated inflation.

In China's case, according to data released by the National Bureau of Statistics on April 11, China's CPI rose 1.5% year on year in March and remained flat month-on-month. PPI rose 8.3 per cent year-on-year and 1.1 per cent month-on-month. The year-on-year "scissors gap" between PPI and CPI narrowed for five consecutive months.

As things stand, the report argues, hyperinflation is not imminent. In this round of inflation, the rise of international commodity prices and the recovery of foreign demand may cause some structural deficiencies in China's corresponding commodity supply. In addition, last year's "sports carbon reduction" in some parts of China also exacerbated the supply shortage. But with the policy adjustment, the supply of related goods can be restored, domestic PPI will show a downward trend. At the same time, China's policies should be based on domestic policy. With a moderate CPI, China should adopt more proactive and expansionary fiscal and monetary policies to achieve stable economic operation and stabilize the expectations of the capital market through reform.