Will meat price fluctuations affect monetary policy?
Recently, the prices of pork and other foods have risen relatively quickly. Some believe that rising meat prices will drive inflation back up and will constrain the room for monetary easing in the future. In response, a relevant official of the central bank said that prices are currently at a low level, and compared with the same period last year, the current price level of around 1.5% is indeed clearly low. Moreover, the main focus will be on the overall price level, and the impact of fluctuations in component prices on monetary policy is relatively much smaller.
Under normal circumstances, fluctuations in component prices indeed have relatively little impact on macroeconomic policy, and in most cases can even be ignored. However, there are two preconditions that must be noted here: first, what kind of component price it is, and second, in what environment and state the component price is fluctuating.
Obviously, if it is the price of a component product that has a relatively large impact on overall prices, such as rice and pork, then great attention may need to be paid. Otherwise, the transmission effect is very strong. In recent years, key agricultural and sideline products such as rice and pork have repeatedly played a role in which one move affects the whole situation, triggering relatively serious price fluctuations. Changes in the prices of rice, pork and the like are also one of the important factors affecting macroeconomic policy, especially monetary policy. Under normal circumstances, changes in the prices of component products have a very limited impact on the market, and therefore are unlikely to have much impact on macroeconomic policy. However, under abnormal circumstances, changes in the prices of component products, especially fluctuations in the prices of key component products, may bring relatively large impacts on market changes and ultimately affect the direction of macroeconomic policy.
The current macroeconomic situation, as well as residents' expectations for price changes, is clearly not a normal state. First, the pattern of economic downturn has not changed significantly, and the economy is still in the process of bottoming out. There is still no timetable for when it can bottom out and rebound and enter a recovery state. Many analyses originally believed that the third quarter would become a turning point for the economy, but now it appears that further observation is needed.
Second, macroeconomic policy has continued to intensify, and various measures have been introduced one after another, but the effects have not been obvious. In particular, investment policies that previously produced quick results also seem to have lost their former power, and have been slow to play an effective role in stabilizing growth. Among these, the inadequate implementation of central investment in some places, which failed to reach expected targets, is one of the important aspects worthy of attention. At the same time, the role of consumption in stabilizing growth has not been reflected, and the phenomenon of weak consumption remains very serious.
Furthermore, the stock market, which was originally meant to provide positive support for stabilizing growth and promoting development, has recently, due to the influence of various factors, not only failed to effectively play a role in stabilizing growth, but instead became a drag on the economy, forcing management to invest a large amount of manpower, material resources and financial resources in stabilizing the market. Moreover, judging from the rescue measures already introduced, such a market rescue approach cannot but leave behind some factors that need to be digested. Some experts analyze that digesting the risk factors left by this market rescue may take about four years.
Finally, the continued easing policy has already left a great deal of liquidity in the market, and this liquidity has not effectively flowed into the real economy. In other words, some of this liquidity is operating with low efficiency, some is circulating outside the system, and some is moving around in the stock market, real estate market and elsewhere, or even operating through underground finance. Once the economy tends to stabilize, it is hard to guarantee that it will not become a huge driving force for inflation.
Therefore, in the face of the rapid rise in pork prices, it may not affect the overall trend of prices in the short term, but if it continues to remain high and the stock market continues to be in relatively serious turbulence, then the rise in pork prices is very likely to cause a chain reaction and be transmitted to other products. Among them, a chain reaction will first occur in agricultural and sideline products, and then be transmitted to areas with greater influence such as the real estate market. Once prices rise by a relatively large margin while the economy is still in a downward state, the risk of stagflation will intensify. By then, macroeconomic policy, especially monetary policy, will be in a dilemma.
At the same time, it should be noted that the question of when the Federal Reserve will raise interest rates has also become one of the very important factors affecting the market, especially the stock market. Once the Federal Reserve chooses to raise interest rates in September, what follows may be another fluctuation in the stock market. Under such circumstances, if prices are still unstable, economic risks will turn into social risks and become an important factor affecting social stability. Therefore, from this perspective, the recent rise in pork prices is also a matter that requires attention and emphasis, and one that requires strong measures to resolve.
In short, regarding the rise in pork prices, do not be too nervous, but do not take it lightly either, and by no means assume that it will not affect the macroeconomic trend. Pork prices are very sensitive prices, and pork is also a component product with very strong transmission effects. On the whole, attention must be paid to it, and an effective early warning mechanism must be established. Only in this way can problems be prevented before they occur and adverse effects on economic stability and economic recovery be avoided.