Abstract: Based on the model of price transmission under the international vertical production structure, the study builds an Expected New Keynesian Phillips Curve which contains exogenous shocks in the open economy. With the test of empirical data, it also analyzes the price transmission effect of China's inflation expectations and the impact of exogenous shock on inflation expectations both in static and dynamic systems. The results show that real inflation and international energy prices are a crucial factor for inflation expectation; there is a significant effect of price transmission between foreign intermediate goods prices and inflation expectation, while a reversal relationship exists between domestic intermediate goods prices and inflation expectations; in addition, the inflation expectations are influenced insignificantly by regulation of central bank's nominal interest rate. Based on these results, the study indicates that relying solely on monetary policy to control inflation expectations could only obtain limited effects. Only when monetary policy, fiscal policy, national policy for energy are combined appropriately, while focusing on adjusting the mode of economic growth, could we achieved a steady condition for China's inflation expectations in both short and long terms.