China moves to tame rising inflation
China freezes prices of select goods, calls for stricter monitoring after inflation rose to 6.5% in August.
By Agencies |
BEIJING: China's government has ordered some prices frozen and told officials to closely monitor others in its most drastic step yet to contain a surge in inflation. The order, issued by six government agencies late on Wednesday, came after inflation rose to 6.5% in August - its highest monthly rate in 11 years - propelled by a double-digit rise in food prices, including pork, the country’s staple meat.
The statement stressed the importance of maintaining “market stability” ahead of a key Communist Party meeting next month. It said controlling inflation would affect China’s development, reform and stability.
Beijing’s immediate worry is that rising consumer prices could spur public unrest. But longer term, economists say a sharp rise in the cost of wages, raw materials or energy could push up Chinese export prices, adding to inflation pressures in foreign markets or prompting buyers to switch to goods from less expensive countries.
The order said government-set prices would be frozen through the end of the year, though it did not specify which items were covered. A man who answered the phone at the cabinet’s planning agency, the National Development and Reform Commission, and refused to give his name said he was unclear what goods would be affected.
A list on the website of the Beijing city government planning agency said products for which the state still controls prices include cooking oil, sugar, gasoline, tobacco, salt, coal and fertiliser.
The move could help to contain inflation in free-market prices by reassuring producers of stable costs for energy and raw materials, said Minggao Shen, a Citigroup economist in Beijing.
About one-third of prices in China are government-set, with the rest left to the market, according to Shen. The inflation spike came amid a boom that saw China’s economy expand by 11.9% last quarter, while stock and real estate prices are soaring. The country’s main stock index hit a new high of 5,460.08 points on Thursday morning.
The government has raised interest rates repeatedly and imposed investment curbs to cool the boom. But its efforts have had little effect on an economy that is undergoing capitalist-style reform and sometimes fails to respond to tools used in free-market countries.
Market order must be maintained to ensure the “smooth opening of the 17th Party Congress,” said the government order. It was issued jointly by the ministries of finance, agriculture and commerce, the cabinet’s planning body and two other agencies.
Communist leaders are especially worried about the political impact of soaring food prices, which hit China’s vast, poor majority especially hard. Families in the countryside and the urban working class spend about one-third of their incomes on food.
Wednesday’s order told local authorities to closely watch market prices of pork and other meat, eggs, electricity and liquified gas but did not order controls on them.
In July, the government barred local authorities from changing state-set prices for consumer goods in areas where they had already surpassed official targets.
The statement stressed the importance of maintaining “market stability” ahead of a key Communist Party meeting next month. It said controlling inflation would affect China’s development, reform and stability.
Beijing’s immediate worry is that rising consumer prices could spur public unrest. But longer term, economists say a sharp rise in the cost of wages, raw materials or energy could push up Chinese export prices, adding to inflation pressures in foreign markets or prompting buyers to switch to goods from less expensive countries.
The order said government-set prices would be frozen through the end of the year, though it did not specify which items were covered. A man who answered the phone at the cabinet’s planning agency, the National Development and Reform Commission, and refused to give his name said he was unclear what goods would be affected.
A list on the website of the Beijing city government planning agency said products for which the state still controls prices include cooking oil, sugar, gasoline, tobacco, salt, coal and fertiliser.
The move could help to contain inflation in free-market prices by reassuring producers of stable costs for energy and raw materials, said Minggao Shen, a Citigroup economist in Beijing.
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“I think it will help change expectations a bit,” he said. “Some companies might have wanted to raise prices because of expected higher energy or resource prices. Now they can postpone that.”About one-third of prices in China are government-set, with the rest left to the market, according to Shen. The inflation spike came amid a boom that saw China’s economy expand by 11.9% last quarter, while stock and real estate prices are soaring. The country’s main stock index hit a new high of 5,460.08 points on Thursday morning.
The government has raised interest rates repeatedly and imposed investment curbs to cool the boom. But its efforts have had little effect on an economy that is undergoing capitalist-style reform and sometimes fails to respond to tools used in free-market countries.
Market order must be maintained to ensure the “smooth opening of the 17th Party Congress,” said the government order. It was issued jointly by the ministries of finance, agriculture and commerce, the cabinet’s planning body and two other agencies.
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The ruling party congress, held once every five years to appoint senior leaders, opens October 15 and is expected to see President Hu Jintao consolidate his power by promoting allies to key posts.Communist leaders are especially worried about the political impact of soaring food prices, which hit China’s vast, poor majority especially hard. Families in the countryside and the urban working class spend about one-third of their incomes on food.
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Pork prices have soared due to shortages blamed on a decline in pig rearing, rising feed costs and an outbreak of a pig disease that killed more than 70,000 animals and infected 280,000 this year. Beijing has tried to bring down pork prices by encouraging farmers to raise more pigs with promises of free vaccinations and other aid.Wednesday’s order told local authorities to closely watch market prices of pork and other meat, eggs, electricity and liquified gas but did not order controls on them.
In July, the government barred local authorities from changing state-set prices for consumer goods in areas where they had already surpassed official targets.
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