Chasing Inflation

Inflation in China is not only an economic concern , but also a clear and present danger.
More than in any other country, it harms essential components of its culture: stability, control of the change, acquaintance with the natural order the common good. The current epitome of these bastions are expressed by the direction of President Hu Jin Tao: “Build an harmonious society”. The inflation means chaos, loss of reference points, assaults to the banks to withdraw deposits, as it took place in the dying days of Nationalistic China, back in 1949. Stable prices and trust in the Government are strictly related: the ruling class’s credibility is due to its ability to guarantee wealth and to handle difficulties.
For these reasons Beijing is looking very seriously to prices’ increase otherwise bearable. China, at least accordingly to official figures, has so far shown every country’s dream: growth without inflation. Inflation bursts are only a pale memory.
In 2010 GDP will increase at double digit. The Consumer Price Index – CPI – last October rose to a 25-month- record of 4,4% on yearly basis. The figure, per se, is not worrisome, being slightly above the tolerable threshold of 3%. Nevertheless, the composition and the perception of inflation today causes much concern. Initiative comes as a consequence. Food makes up one third of China Cpi, in line with similar values in developing countries. By contrast, groceries in the US represent only 8% of CPI. Vegetables’ price climbed 31%, while food’s ones rose 10%. Even McDonald, in a move very covered by the media, raised its menu price. All these events are perceived as a strong decay in buying capacity.
Similar feelings are reinforced by new prices of transportation and energy. In economic terms we can also predict a rapid transmission from the Produce Price Index (PPI) to the CPI. Industrial goods are already more expensive. Cement, for example, hit new records because recent energy curbs, aimed to environmental protection, affected its production; most commodities are on the rise too due to increasing worldwide demand, liquidity and speculation.
To tackle these problems, the Government is planning a “Back to the Future” move, persuaded that a control on prices will be essential. It is an old administrative remedy, to be added to the more economic ones, like raising the banks’ reserve requirements or the interest rate. The powerful National Development and Reform Commission, NDRC, postponed Beijing Municipality’s decision to rise utilities’ tariffs. Local Governments have been urged to look after the prices’ increase and to cater the needs of the low-income earners. Finally, NDCR released millions of tons of state stockpiled food. The market will absorb them and the price of grain, corn, rice, and edible oil will be kept under control. If these measures will prove insufficient , the Government said to be ready to go beyond, up to the imposition of political prices. It is an extreme measure, seldom used over the last 2 decades. It contradicts blatantly with the market economy China is willing to achieve, but stability and continuity are proving to be more important.