Abstract:

During the period from 1997 to the end of 2002 the retail price index in China declined continuously for 60 months, and meanwhile China's macro-economy maintained a high-speed and high-quality growth. As a result, the current fall of prices has shown some new characteristics different from those in the past. Although the dominant explanations of reasons for the fall given by economists and government officials are quite persuasive, they are insufficient to explain those new characteristics. Experiences and concrete researches show that a relative drop of labor cost in our country's secondary and tertiary industries in recent years has made prices drop mildly and continuously on the one hand, and has greatly accelerated the growth of aggregate economy on the other hand.

Key words: labor cost, price, economic growth