What Causes Decreases in Price Level?

The overall market price level refers to the comprehensive reflection of the price dynamics of various goods and services in a country or region over a certain period of time. It is a weighted average of various types of social commodity price indexes.

Total market price

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The total market price level refers to a country or region's

The overall price level belongs to the macroeconomic category. It not only comprehensively reflects the state of the national economy, but also actively plays a role in regulating the national economy. It is an important aspect of the country's macroeconomic management that cannot be ignored. There are many factors that affect the overall price level, such as social labor productivity, labor wages and salaries, social accumulation, the relationship between the total demand for social goods and the availability of goods, the adjustment of commodity prices, and changes in the value of money, etc., which can cause market prices Changes in overall levels.

In order to strengthen and improve macro-control, China's price law takes the stabilization of the overall market price level as a main content of the legislative purpose, and clearly stipulates that the stabilization of the overall market price level is an important macro-control goal of the country. Social affordability, determine the overall market price control target, include it in the national economic and social development plan, and comprehensively use monetary, fiscal, investment, import and export policies and measures to achieve it.

Modern market economy countries have taken the relative stability of the overall price level as one of the main goals of national macro-control. The fundamental reason is that the sharp fluctuation of the overall price level, whether it is a sharp decline or a sharp rise, has a bearing on the stability and economy of the entire society. The stable and coordinated development of China is very harmful. As the primary goal of China's macroeconomic regulation and control, stabilizing the overall price level has naturally become an important goal of price legislation. In order to achieve the policy goal of stabilizing the overall market price level, it is necessary to use monetary, fiscal, investment, and import and export macroeconomic policies to regulate the economy. In terms of monetary policy, mainly indirect financial control measures such as interest rates, open market operations, reducing the discount rate, and increasing the reserve ratio of commercial banks to regulate the money supply in circulation and maintain currency stability; in fiscal policy, we start with increasing income and saving. Changes in fiscal revenue and expenditure affect the level of macroeconomic activities, and then the overall level of market prices; in terms of investment, by increasing or decreasing the total amount of investment, regulating and adjusting the direction of investment, reducing capital pressures on fluctuations in the overall level of market prices; and in terms of imports and exports, It is to regulate supply by adjusting tariffs and strengthening domestic market management to prevent sharp fluctuations in the overall price level.

The overall level of stable market prices refers to the relative or basic stability of the overall price level, that is, no large fluctuations occur, and the prices of important goods and services that are related to the national economy and the people's livelihood should not skyrocket. Generally, the overall price level is basically stable with three quantitative limits: that is, the price increase does not exceed the economic growth rate, does not exceed the increase in people's wage income, and does not exceed the interest rate on bank deposits.

In order to achieve the stability of the overall market price level, China's price law provides the following specific price control measures:

(1) Establishing a price monitoring system If a country wants to stabilize the overall level of market prices through macroeconomic regulation, it must have a comprehensive and adequate understanding of market prices. Article 28 of the Price Law stipulates that: in order to meet the needs of price regulation and management, the government's competent price department shall establish a price monitoring system to monitor changes in the prices of important commodities and services. This is because price is the most active factor in the market and it is a variable restricted by many factors. It is by no means easy to understand the real reason for price fluctuations and its development trend. Therefore, the Price Law stipulates that the government's competent price department should establish a price monitoring system to monitor changes in the prices of important commodities and services. Only through scientific methods and necessary and regular monitoring of changes in the prices of important goods and services can accurate and valuable price information, information and related data be obtained. This is the basis and prerequisite for the government to take necessary and correct control measures on prices in a timely manner. The "Price Monitoring Regulations" have been discussed and adopted at the office meeting of the National Development and Reform Commission, and have been formally implemented since June 1, 2003.

(2) Establish an important commodity reserve system and set up a price adjustment fund. After the price formation mechanism is mainly formed by the market, the prices of most goods and services are subject to market adjustment, that is, the operators will independently price in market competition, subject to supply and demand The impact of commodity price fluctuations is inevitable. Fluctuations and changes in general commodity prices will not affect the overall situation and social stability. However, the price fluctuations of some important products related to national economy and people's livelihood, such as grain, cotton, petroleum products, and steel products, will exceed the affordability of consumers and producers, which will affect social stability and the healthy development of the market economy. For the long-term interests of the country and the people as a whole, the price law stipulates that a relatively sound important commodity reserve system and a price adjustment fund should be established. Regulate supply and demand by stock throughput. When the price of an important commodity rises too high, it is possible to sell the reserve commodity to curb the price increase; when the price of an important commodity is too low and affect the reasonable income of the producer, the commodity is acquired to support the price. Regulating prices in this way can stabilize the market. The purpose of setting up a price adjustment fund is also to stabilize market prices and avoid or mitigate the impact of abnormal and large fluctuations in commodity prices.

(3) Protecting prices on major agricultural products To prevent low prices from hurting farmers, protect farmers enthusiasm for production, and stabilize and secure the supply of agricultural products, the Price Law states: When the government s purchase price of important agricultural products such as grain is too low, It is important to protect prices during the acquisition and take corresponding economic measures to ensure their realization. "Implementing a price protection system for important agricultural products according to law is of great significance. For example, if agricultural crops are harvested in successive years, some agricultural products are sold poorly, prices have fallen sharply, and farmers' income has slowed down, the government can make a decision to purchase bargaining grain at a protective price and request to purchase bargaining grain at a protective price. Restricting income, non-stop collection, non-compression and price reduction, and no white bar, will greatly encourage and mobilize farmers' production enthusiasm, and lay the foundation for maintaining the good momentum of agricultural development and the sustained, rapid and healthy development of the national economy.

(4) Intervention measures or emergency measures can be taken for some prices. Under market economic conditions, prices fluctuate around the value of commodities and fluctuate due to the influence of supply and demand. This is a normal phenomenon and a necessary condition for the market to optimize the allocation of resources. . However, due to various reasons such as political, economic and natural disasters, the prices of some important goods and services may also suddenly and significantly rise or fall. Obviously, if this happens, it will lead to a decline in people's living standards and disorder in social order, affect social stability and hinder the development of the national economy. Therefore, the Price Law stipulates: "When important commodities and prices have risen significantly or are likely to rise significantly, the State Council and the people's governments of provinces, autonomous regions, and municipalities may adopt a limited spread or profit rate, set a limit price, and implement a price increase declaration system And price adjustment filing systems. "

The Price Law also provides that under special circumstances, the State Council can take urgent measures to regulate the overall level of market prices. Because under normal circumstances, the state can ensure the stability or basic stability of the overall market price level through policies and legal measures without abnormal and huge fluctuations. However, it is not possible to completely rule out sudden and sharp fluctuations in the overall level of market prices caused by war, natural disasters, and inflation. Therefore, the Price Law stipulates that: "When the market price level fluctuates violently, the State Council may take emergency measures to temporarily centralize pricing authority and partially or completely freeze prices throughout the country or in some regions." The choices that should be made to stabilize prices, ensure supply, stabilize the lives of the people, maintain normal social and economic order, and avoid serious losses to the national economy are in the fundamental interests of the country and the people. When the situation of implementing emergency measures according to law is eliminated, the emergency measures shall be lifted in time to restore normal order.