About the Price inflation of Pu-erh tea

The over issue of money will lead to the inflation of all the commodity. In certain circumstance, Pu-erh will have similar phenome of inflation. However, it is not caused by the over issued money, but because of the fast appreciation over a short period of time.

People are happy to see the increased value of Pu-erh tea. Because it can reflect the collection value of Pu-erh tea, which will bring the benefits in wealth. Especially in the market like Fang Village, where has strong market liquidity. It is common to hold a 100,000 RMB valued tea for a week and resell it for 200,000 RMB. It is definitely not something new.

In the eye of the people in Fang village, the soaring price of Pu-erh tea is the symbol of the prosperity of the Pu-erh market. However, in fact, the surge price of Pu-erh tea in short term equals to the inflation of Pu-erh tea. When the situation happens, the liquidity in the Fang village’s market will make the situation worse. For example, suppose there are 100 tea traders in Fang village, each of which have 100,000 RMB in liquid. In a short amount of time, the total capital is relatively small. When each type of tea is worth 10,000 RMB, the whole group of tea traders can purchase 1,000 this type of tea. When the price of this type of tea increased to 20,000 RMB per each, the total capital of the tea traders can only afford 500.

An interesting phenomenon will appear at this time. When the tea traders start to pull a certain amount of money to purchase tea. We assume that the total amount of tea is 500 with a price of 10,000 RMB per each. When the first round of distribution ends, the market liquidity will only have 5,000,000 RMB left. Accompanied with the market situation (the price increase due to the lack of supply in the market), the price will increase to 15,000 per each. The whole value of this batch of tea has increased to the total of 75,000,000. Later on, the traders who have purchased the tea earlier will release part of the products (let’s assume 100). The market liquidity will then be 4,500,000 RMB. With the series rounds of price increase, the price of tea will easily get raised up. The capital in the hands of the tea traders can no longer equal to the price of the tea.

Assume this batch of tea are still fresh tea. Then, as a manufacturer, it can totally add another batch of products into the market due to the hot market. The price of the new products will be marketed with the current market price. Then, the cash the tea traders have will easily take away by the manufacturer. Without the market liquidity, what can we use to support the soaring price of the tea? The tea traders cannot issue money. The vicious inflation in the Pu-erh market will bring the risk caused by the excessive speculation and products supply. Therefore, in order to avoid the occurrence of such situation, the unit price of the Pu-erh tea should be maintained in a relatively stable range. Only by doing so, can the market be prosperity.

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