Rising oil prices will exacerbate inflation risks

Since the beginning of this year, due to the turmoil in the Middle East and North Africa, global crude oil prices have entered an accelerated upward path. Brent crude oil prices rose from US$ 94.8/bbl at the beginning of the year to US$ 126.7/bbl on April 8, an increase of 33.6%; WTI crude oil prices From US$91.6/barrel to US$112.8/barrel, the increase reached 23.1%.

From historical experience, every sharp rise in crude oil prices will cause countries to experience a general decline in GDP and price increases. The author believes that the rise in crude oil prices will also have a major impact on the global economy.

In the short term, oil prices will continue to rise, and high oil prices will threaten the global economic recovery. The rise in oil prices will affect capital and labor input, reduce the growth rate of GDP, and increase the inflation rate, all of which will have a huge impact on the real economy. The OECD pointed out in the "Effect of Rising Oil Prices on Economic Activity and Inflation" that every 10 dollars increase in oil prices will cause the 2012 GDP growth rate of OECD countries to fall by 0.2 percentage points, and the inflation rate will increase by 0.2 percentage point; if it rises by 25 dollars per barrel, The economic growth rate of OECD countries in 2012 will fall by 0.5 percentage points, and the inflation rate will increase by 0.75 percentage points.

However, due to different industrial structure and energy consumption structure, the impact of crude oil price fluctuations on developed countries and emerging economies is different.

High oil prices will hinder the economic recovery of developed countries. Historically, during the period of sharp rise in oil prices, accompanied by the economic recession of developed countries, under the current background that its economy has not yet fully recovered, high oil prices will certainly cause certain economic recovery. Impact.

The developed countries are in the stage of economic recovery and the demand for energy has further increased. At present, over 85 percent of the energy supply in the United States is provided by fossil fuels, and the energy required by its transportation industry is almost entirely dependent on oil, which leads to a higher degree of US oil dependence. Similar situations exist in Europe and Japan. In 2009, the oil consumption of the United States, the European Union, and Japan accounted for 22.2%, 16.8%, and 5.2% of the total consumption. Rising oil prices will hit the economies of developed countries. During the three oil crises, the GDP growth rates of the United States, Japan, and Europe all dropped significantly.

Of course, the impact of rising oil prices on the economies of developed countries is also somewhat different.

Because European countries’ dependence on oil imports is higher than that of the United States, their economic impact will be higher than that of the United States. Spain’s net oil imports accounted for 6.6% of GDP, Italy 2.1%, Germany 2.4%, and the US net oil imports accounted for only 1% of GDP. From the perspective of import sources, 30% of European oil imports originate from the Middle East and North Africa. Libya is known as an oil depot of European countries. According to IEA data, 70% of its oil production is exported to Europe. About 22% of Irish and Italian crude oil imports come from Libya, and Germany and Spain are also important exporters of Libyan oil.

The U.S. oil imports mainly come from Canada and Mexico, and imports from the Middle East account for only 11% of its crude oil imports. It is also due to different sources of oil imports that there is a large spread between New York WTI crude oil and London Brent crude oil.

The greater risk of crude oil prices to the U.S. economy comes from U.S. consumers. Americans consume about 140 billion gallons of gasoline each year. The correlation coefficient between refined oil prices and crude oil prices in the United States is very strong. The huge increase in oil prices will increase the cost of energy for American consumers, and will consume a considerable budget, which will drag on the U.S. economy. recovery.

The impact of oil prices on the European economy is not only reflected in the current account, but also the impact of the euro on its economy. Recently, the CPI in the euro area has risen. The European Central Bank resumed raising interest rates last week and pushed up the euro. The cost of financing in the euro area has further risen. International crude oil prices have been denominated in US dollars. The euro has continued to strengthen relative to the US dollar. The rise in oil prices has led to further economic development in the euro zone. shrink.

Japan will be the hardest hit by the impact of oil prices. Japan is a country with extremely low energy resources. Oil production accounts for only 0.2% of Japan's national oil demand. It is almost a pure petroleum importer. Japan is the world’s third largest consumer of oil, and its dependence on oil is quite high. The proportion of oil in primary energy consumption is 48.7%, and its oil import sources are also very concentrated, with 84.7% coming from the Middle East (2009). Under the continuous blow of the earthquake, tsunami and nuclear crisis, high oil prices will make Japan's economy worse.

High oil prices will exacerbate inflation risks in emerging economies Crude oil prices have a greater negative impact on emerging economies and developing countries.

Most of the emerging economies have a relatively high proportion of manufacturing industries, and rely heavily on oil imports. Thailand, India, and Asia’s four dragons have net oil imports that account for more than 5% of GDP, and they have low energy efficiency. Thailand, Vietnam The consumption of oil per 1,000 US dollars of GDP in Malaysia, Malaysia, and India is close to or exceeds one barrel, which is much higher than the level of 0.4 barrels in developed countries.

During the three oil crises, the GDP of major emerging economies fell by 4%, and the CPI rose by an average of 3.5%. Since 2009, the economic growth momentum of emerging economies has been significantly better than that of advanced economies, but its inflationary pressure has also increased significantly. With the rise in crude oil prices, inflationary pressures will further increase.

The rise in oil prices will increase the cost of food production, increase the demand for biofuels, reduce the supply of food, and push up food prices. In the CPI composition of emerging economies, 30% to 50% are related to energy and food prices, so rising oil prices will have a serious impact on the CPI of emerging economies through the additive effect.

Impact on China's Economy and Countermeasures and Suggestions Against the backdrop of high oil price shocks in the world, the Chinese economy is also undergoing tremendous challenges. From the demand point of view, China’s oil consumption is rising in a straight line. In 2009, crude oil consumption accounted for 10.3% of the world's total. It has become the second largest oil consumer after the United States. China consumes about 0.65 barrels of oil per 1,000 US dollars of GDP. Far above the level of the developed countries. From the viewpoint of petroleum resources, the remaining recoverable reserves accounted for only 1.2% of the world's total in 2008. Since 1993, China has become a net oil importer, and its net oil imports accounted for 12% of total imports. In 2010, China’s dependence on foreign oil It has exceeded 50%.

The rise in oil prices will have a greater impact on China's economy. According to the study of Zhang Bin of the Chinese Academy of Social Sciences, the negative impact of oil prices on the growth rate of China's industrial added value has a duration of more than 10 months. The rise in oil prices will also push up China’s CPI, and input-type inflationary pressures will remain within at least 10 months. .

At present, China is already at a high level of inflation. Rising oil prices will increase transportation costs and push up food prices. According to our calculations, food products account for more than 30% of China's CPI, transportation and communications account for about 11%, and oil prices push through. High food prices and transportation costs push up prices. In addition, since the beginning of the year, China’s PPI has shown a rising trend. The year-on-year growth rate in February has reached the high point of the past two years. The increase in the price of crude oil and other commodities has a significant effect on the transmission of PPI. The rise in oil prices will further boost domestic demand. PPI. Although China's transmission from PPI to CPI is not smooth, PPI has been continuously rising since the end of last year, and its conduction effect on CPI will appear in the past two months.

How can China meet the challenge of high oil prices?

The author thinks that: First, anti-inflation should be given priority in the short-term. The government should give priority to the inflation target between the inflation target and the growth target. The monetary authorities must maintain the stability and continuity of the policies, and comprehensively use such measures as interest rates, exchange rates, deposit reserve ratios, and open market operations to timely recover liquidity and curb the further rise of the CPI.

Second, reform of pricing mechanism for refined oil products should be steadily advanced. In the long run, the pricing mechanism of China’s oil should be in line with the international market. However, in the short term, when the international oil price soars, the price of refined oil will be greatly increased, which will damage the interests of consumers and increase the production costs of related industries. This will continue to push up prices and curb economic growth. Therefore, it is not a good time to raise the price of refined oil in the short term.

Finally, we must actively develop new and renewable energy sources. China must use this as an opportunity to promote economic restructuring and accelerate economic restructuring in the process of developing new energy.