Abstract: By comparing the national average real estate prices index with CPI data from 2002—2011, we can find that the interactive relationship between China’s real estate prices and inflation trends is very complex. Therefore, it is necessary to clarify the dynamic relationship between them. In this respect, based on the theoretical analysis, we make a cointegration equation and a vector error correction model based on real estate prices, inflation rate, the general money supply, short-term interest rate and economic output in China from January 2002 to December 2011, and then proceed to make related test and analysis. The empirical result shows that: In the interval range of samples, there exists a long-term stable dynamic equilibrium relation between China’s real estate prices and inflation; in the short term, real estate prices fluctuation has a weak impact on the inflation, while inflation has a significant positive impact on real estate prices.

Key words: real estate prices, inflation, interactive relationship, vector error correction model