Abstract: At present, the market seems to focus on the "inventory cycle time", and there is a view that the current inventory cycle is bottoming out and will enter the active inventory replenishment stage and resonate with the recovery of demand. In reality, however, it is difficult to meet the preconditions for an inventory cycle in a modern economy. In other words, there has never been an inventory cycle, but only an inventory adjustment in the economic cycle.
Over the past two quarters, the actual level of business inventories has continued to increase rather than decrease and has probably been higher than the desirable level. Using the popular inventory cycle framework, industrial enterprises are perhaps still in the stage of "passive inventory replenishment".
As long as aggregate demand remains insufficient, the positive feedback process of economic contraction is not blocked, and the market still lacks an effective clearing mechanism, the levels of both inventories and inflation are expected to go down further. Even if aggregate demand improves significantly in the future, firms will be more likely to take advantage of the improvement in demand to reduce their inventories until they are down to a desirable level.
