Understanding Finance from scratch

Chapter 6 No one speaks Chinese these days, everyone speaks CPI——Learn some financial terms every day (2)
Why do we focus on food here?We must know that food consumption accounts for 34% of the weight of the CPI composition, and the recent price rise directly affects the "vegetable basket" of the people. A rise in CPI by one percentage point has an intuitive and inverse relationship with the increase in public consumption expenditure, and an intuitive and inverse relationship with the decline in the quality of life of the people.

Let's take a look at the following real-life examples:

外出就餐：在2002年，100元足够在一个中档餐馆点6个菜，可以满足7个人的就餐要求；而在2010年100元只能在同样的餐馆点3个菜，满足两个人的就餐要求。

罐装液化气：2002年的时候，100元能灌2罐煤气；2010年只能灌1罐煤气。

大米：2002年1斤大米1块钱，100元能买100斤大米；而在2010年，大米已经2块多一斤，100元钱甚至连50斤大米也买不来。

啤酒：2002年时啤酒1.2元/瓶，100元钱能买83瓶；如今，啤酒2.5元/瓶，100元只能买到40瓶啤酒。

CPI is not a cold data. It affects many aspects of society and people's livelihood. No one can estimate the impact of its fluctuations.People have to buy rice and vegetables, right?One must have a house to live in, right?People have to use water, electricity and other public services, right?To put it a little further, people must have a higher level of spiritual pursuit after the basic life is satisfied, right?For example, you can have rest during festivals, be able to reunite with your family, and travel, exercise, and read books within a reasonable range... But in the face of rising prices, many items related to spiritual consumption have been cancelled.And more people have begun to lose the "sense of security" that they can consume as much as their income in the past due to the "rising tide" of prices and "snail crawling" wages.

When the CPI continues to rise, the pressure of rising prices may not be alleviated in the short term. For an ordinary consumer, a long-term plan must be made for the rise of the CPI. To form the habit of investment and financial management, big money can be managed, and small money can also be managed. Good financial management methods can reduce the current price pressure.

The "thermometer" PPI of the national economy
2007年PPI统计数字显示：工业品出厂价格上涨3.1%，其中生产资料价格上涨3.2%，生活资料价格上涨2.8%；原材料、燃料、动力购进价格上涨4.4%；农产品生产价格上涨18.5%。

This year, a farmer in a certain place planted about 20 mu of cotton. Due to the summer rain, the harvest fell by 1/3 compared with the previous year. The rise in cotton prices in the previous year made him smile, but the fall in cotton prices Let him down again. "This year's harvest is lower than last year's, but the cost of chemical fertilizers and labor is much higher than last year's. If the price does not go up, it is estimated that the cotton planting area will decline next year."

In this story, the PPI outperformed the CPI, indicating that the cost increase rate of producers obviously exceeded the price increase rate of terminal consumer goods, which will undoubtedly bring huge operating pressure to business operations.

Although the National Bureau of Statistics will release PPI every month.However, for most people, PPI is still a very unfamiliar concept. What exactly is PPI?What does it represent?What does it have to do with CPI?

PPI can be regarded as a "thermometer" to understand the state of the country's economic development.Through the changes in PPI, we can roughly judge the operating conditions of the national economy, and thus predict the country's macroeconomic policies in the future.

So what is PPI? PPI is the English abbreviation of Producer Price Index. It is a price index that observes the price level changes of goods and services in different periods from the perspective of producers. An important basis for accounting. The PPI describes the measure of the average change in the long-term sales price received by domestic producers of goods and services that most consumers will not buy, but instead measures price changes from the perspective of sellers, due to subsidies, taxes, and distribution costs, The seller's price is not necessarily the same as the buyer's price.Generally speaking, the production of goods is divided into three stages: the completion stage, the goods are no longer processed; the intermediate stage, the goods still need further processing; the original stage, the goods have not been processed.

In my country, PPI generally refers to the ex-factory price index of industrial products published by the Bureau of Statistics. At present, there are more than 4000 survey products in my country's PPI, including various means of production and living materials, involving 186 survey categories.Among them, the price of energy raw materials accounts for a large proportion in the composition of PPI.Normally, a higher PPI means that the ex-factory prices of enterprises will increase, which will lead to an increase in corporate profits; however, if the downstream price transmission is unfavorable or the market competition is fierce, a higher PPI means that enterprises in many competitive fields will face more and more pressure. Cost pressures will affect corporate profits, and the stability of the entire economy will also be tested.

Although the PPI index is not an index that directly measures consumer prices, it is still very important.Since it includes semi-finished products at the beginning of the production phase, it can be used to make early forecasts of inflation.The reason is simple, when business costs rise, companies usually raise prices.Generally speaking, when the producer price index increases greatly and continues to accelerate, the central bank responds by raising interest rates to prevent rapid inflation, and the possibility of currency appreciation increases; and vice versa.

For ordinary people, PPI is usually used as an important indicator to observe the level of inflation.Since food prices increase due to seasonal changes, and energy prices often fluctuate unexpectedly, in order to reflect the price changes of the overall commodity more clearly, changes in food and energy prices are generally removed to form the core producer price index. Further observe the trend of the inflation rate.

We often see PPI and CPI being linked together in newspapers, so what is the relationship between the two?According to the law of price transmission, PPI has a certain impact on CPI. PPI reflects the price level of the production link, and CPI reflects the price level of the consumption link.Fluctuations in the overall price level generally first appear in the production sector, then spread to downstream industries through the industrial chain, and finally affect consumer goods.

Compared with PPI, CPI is a lagging indicator.However, PPI has a certain transmission effect on CPI. This transmission effect comes from two aspects: first, changes in the ex-factory prices of living materials directly affect the changes in CPI; second, changes in the ex-factory prices of living materials directly cause changes in the costs of enterprises producing consumer goods , indirectly affects the change of CPI.For example, an increase in the price of oil will lead to an increase in the price of petrochemicals, which will lead to an increase in the price of chemical fibers, which in turn will lead to an increase in the cost of textiles and clothing, thereby pushing up the price of consumer goods.Therefore, in most cases, the trend direction of CPI and PPI is the same.

But many times we will also see that CPI and PPI are not uniform or even contradictory. This is because CPI includes not only consumer goods prices, but also service prices. CPI and PPI are not strictly corresponding in terms of statistical standards. It is possible for changes to be inconsistent.However, if CPI and PPI continue to be in a state of deviation, this does not conform to the law of price transmission.The main reason for the break in price transmission is that the industrial product market is in a buyer's market and the government artificially controls the price of public products.

In short, the increase in PPI is not a good thing even for ordinary people, because once producers transfer costs, the price of final consumer goods will rise, which in turn will lead to an increase in inflation.If it is not transferred, corporate profits will decline, and the economy will face downside risks, which will directly affect our economic life.

The Gini Coefficient: A Measure of Living Standards
The Gini coefficient comes from the Lorenz curve. To calculate the Gini coefficient, one must first understand the Lorenz curve.The curve was proposed by the statistician Lorenz in 1905.Draw a rectangle, the height of the rectangle measures the percentage of social wealth, and divide it into 5 equal parts, each of which is divided into 20% of the total social wealth.On the length of the rectangle, the 100 families are arranged from the poorest to the richest, left to right, and divided into 5 equal parts. The first equal part represents the 20 families with the lowest income.In this rectangle, all the wealth owned by each family is accumulated by percentage, and the corresponding points are drawn on the graph, and a curve is obtained, which is the Lorenz curve.

From the above text, we can roughly guess the economic meaning of the Gini coefficient, which is an economic indicator that measures the gap between the rich and the poor and reflects the quality of life.So how to judge whether the Gini coefficient is balanced or not?What kind of connection does every bit of its change have with our lives?

Marx said that when everyone lives in a thatched cottage, no one feels unfair, and everyone will live happily in peace; but when someone builds a palace next to it, people's psychological activities will change, and people will feel unfair. .This sense of injustice will cause a series of social problems and lead to the redistribution of social wealth.That's why the Gini coefficient has gotten so much attention, an important indicator of the overall extent of income disparity.

What is the Gini coefficient?To put it bluntly, it is the percentage used for unequal distribution in all residents' income.The minimum Gini coefficient is equal to 0, indicating that the income distribution is absolutely even; the maximum is equal to 1, indicating that the income distribution is absolutely unequal; the actual Gini coefficient is between 0 and 1.The larger the Gini coefficient, the more uneven the income distribution; the smaller the Gini coefficient, the closer to the average income distribution.Internationally, it is generally believed that when it is between 0.3 and 0.4, it means that the income distribution is relatively reasonable, when it is between 0.4 and 0.5, it means that the income gap is too large, and if it exceeds 0.5, it means that there is polarization.But from a practical point of view, the use of the Gini coefficient in countries around the world is not completely consistent.Many countries combine it with other factors to comprehensively judge the income gap.In many countries, the Gini coefficient has different standards and boundaries.In general, the Gini coefficient can only be used as a reference, not absolute.

At present, my country calculates three kinds of Gini coefficients, namely: the Gini coefficient of rural residents, the Gini coefficient of urban residents and the Gini coefficient of national residents.The international alert standard with a Gini coefficient of 0.4 is basically applicable in my country.Experts suggest that when measuring the income distribution gap among rural residents or urban residents separately, the respective Gini coefficient warning line can be set at 0.4; when measuring the income distribution gap among national residents, the warning line can be limited to 0.5 It is 0.45, and it is operated at [-] in actual work.

Since the reform and opening up, the gap between the rich and the poor has gradually widened while China's economy has grown. It is an indisputable fact that the Gini coefficient has crossed the warning line in terms of the income of various residents.Data from the National Bureau of Statistics show that since 2000, China's Gini coefficient has crossed the warning line of 0.4 and has been increasing year by year. In 1978, China's Gini coefficient was 0.317, and in 2006 it rose to 0.496.From the perspective of ordinary people, the Gini coefficient reflects the relative level of quality of life, and it will affect your mentality, such as giving you a sense of accomplishment or embarrassment based on your relative wealth.

So, what caused China's Gini coefficient to remain high?There are two reasons: one is that the development of small and medium-sized enterprises is insufficient, and there are too few middle-income groups; The service industry is also underdeveloped.

Some optimists believe that although China's Gini coefficient exceeds the international warning line of 0.4, due to the large gap between urban and rural areas, it cannot copy international statistical standards.Moreover, China's economy is in an upward stage of development. On the whole, the number of poor people is gradually declining and decreasing, and the living standards of the people are gradually improving.At the same time, because Chinese residents are distributed in the dual structure of urban-rural division, coupled with the urban-rural household registration system and employment system, it is difficult for residents to realize the income gap between urban and rural areas.The Gini coefficients of both urban and rural areas are still within a reasonable range.

As a specialized calculation indicator, the Gini coefficient has its own capabilities and difficulties.A low value of the Gini coefficient does not mean a reasonable distribution and social progress.Conversely, in the process of expanding the Gini coefficient, reasonable and legal unequal distribution is mixed with irrational and legal unequal distribution, which also needs to be clearly distinguished.

National Credit: Behind the Hot Sale of National Bonds

During the Warring States period, Shang Yang was preparing to carry out political reforms in the Qin State. Fearing that the common people would not believe it, he ordered people to place a three-foot-high wooden pillar in front of a city gate in the capital, and posted notices everywhere: "Who can take the wooden pillar in front of the city gate?" Zhu moved away, the government will reward him fifty gold." After seeing the notice, the common people talked a lot.Everyone suspected that this was a deceitful move, but a young and strong man with a big waist said: "Let me try it! I will go and remove the wooden pillar of the city gate. If the government rewards you, it means that they still keep their promises. From now on, we will listen to them; if they don’t reward the people, it means they are fooling the people. No matter how good they say in the future, we won’t believe what they said.” After that, he went to the city gate and moved the wooden pillar away. .When Shang Yang heard the news, he immediately ordered to reward the man fifty gold.Seeing that he really got the fifty gold, the strong man couldn't help laughing. While showing off the fifty gold, he said to the surrounding people: "It seems that the government is still trustworthy!" Ten rumors spread hundreds of times, and soon it spread throughout the entire Qin State. After "moving wood to establish trust", the national credit was deeply rooted in the society, and social credit was nurtured and developed from this. Shang Yang ordered reforms, and Qin State followed up with administrative orders.

We have all heard the story of Yimu Lixin, which is actually the process of establishing national credit.So, what role does national credit play in the financial market?What is the relationship between national debt and national credit?

National credit is a kind of credit activity carried out by the country as the main body.According to the principle of credit, the country borrows currency funds from domestic and foreign currency holders by issuing bonds and other means. To put it bluntly, national credit is actually a kind of national debt.National credit is not only a method of raising funds for the country to make up for the imbalance of revenue and expenditure and insufficient construction funds, but also a measure and means for implementing fiscal policies and macro-control.

National credit affects the whole process of financial market development.During the period of primitive accumulation of capital, national credit was one of the powerful levers.Under the capitalist system, government bonds are mainly issued through the big capitalist banks or in the open financial market. Not only can the banks get a lot of rebates from it, but the various bonds issued by the government also provide a lot of virtual capital for the bank's joint-stock companies. and an important object of speculation.And with the deepening of the capitalist economic crisis and financial crisis, the income obtained through state credit has become an important source of state fiscal revenue and the main means to make up for the deficit.In modern western developed countries, national credit is not simply a means of obtaining fiscal revenue, but has become an important economic lever to regulate economic operation.

With the development of capitalism, national credit has even developed from domestic to foreign, that is, the government of a country borrows from the government of another country or private enterprises and individuals in the name of the country, and issues government bonds in the international financial market. The means of fiscal deficit has also become a powerful lever to adjust the balance of payments and foreign trade.This kind of national credit is not mainly used to make up for the deficit in the current fiscal revenue and expenditure, but a means of gathering funds for economic construction.In particular, the issuance of government bonds to foreign countries can make up for the shortage of domestic construction funds on the one hand, and on the other hand can introduce advanced foreign technology, expand foreign trade, and adjust the balance of payments.The financial basis of national credit is the ability of the country to repay debts in the future. This debt repayment ability comes from the financial resources belonging to the country (all the people). Its cash flow comes from three aspects: the country's tax revenue, the government's paid transfer of state-owned assets (including land) and the exclusive power of the state to issue currency.

So what are the basic forms of national credit?

(1) Public debt, which is a long-term liability, generally more than 1 year or even 10 years or more.It is usually used for national large-scale project investment or large-scale construction.Specific purposes and investment projects are not specified when issuing public bonds.

（2）国库券，这是一种短期负债。以1年以下居多，一般为1个月、3个月、6个月等。

(3) Special bonds, which are bonds with specified purposes, such as national key construction bonds issued by China.

(4) Financial overdraft or borrowing. When public bonds, treasury bills, and special bonds cannot make up for the fiscal deficit, the remaining deficit will be overdrafted and borrowed from the bank.Overdrafts are generally temporary, and some are repaid within the year.Borrowing generally has a long term, and can only be repaid in the next year when the fiscal revenue is greater than the expenditure (including the issuance of public bonds).Some countries (such as China) only count financial overdrafts and borrowings from banks as fiscal deficits, while the issuance of treasury bills and special bonds is regarded as fiscal revenue and not indicated in the deficit.

(End of this chapter)