Sunday December 02, 2007

China in grip of inflation

chicagotribune.com :

Prime Minister Wen Jiabao and his entourage set off into Beijing's back streets one morning this month [Nov 2007], in search of "genial informal discussion" with "people facing hard times," as the state press put it. His visit was intended to broadcast the government's commitment to defusing the leading complaint on the Chinese street this fall: inflation. The highest inflation in more than a decade is frustrating citizens and unnerving political leaders who are mindful that rising prices have been a volatile factor throughout Chinese history. The premier's much-photographed walkabout highlights a central dynamic in China's political balance: The public permits the Communist Party to rule without opposition as long as the regime continues to improve the standard of living. Indeed, facing 11 local residents, Wen said that ensuring a thriving country and prosperous population is "the party and government's duty."

China's consumer prices soared by 6.5% in October, compared with a year earlier, matching a rise in August that was the highest in 11 years. Housing is also on the rise, with home prices growing by a new monthly record of 9.5% in October despite government efforts to slow the boom. Driving the increase in day-to-day goods was a 17.6% leap in food prices, which draw particular ire in China because people spend a relatively high portion of household income on food. The issue was grimly illustrated earlier this month when three shoppers at a supermarket in the inland city of Chongqing were killed in a stampede of customers fighting over bottles of specially priced cooking oil. The discount of 20% amounted to $1.50 a bottle.

Economists and executives in China say the increases reflect soaring prices worldwide for oil, grain and other commodities. Those price spikes are rippling through the production chain with no obvious end in sight. Economists suspect that prices are likely to climb still higher before the end of the year. The September price controls prevented refiners from passing on higher crude oil prices to consumers. Refiners simply cut their production of gasoline and diesel, leading to long lines at the pump and a new round of complaints. Chinese authorities had no choice but to relent. They permitted an increase of about 10% in the price of gasoline and diesel. And that, manufacturers say, is likely to push up the price of other goods - extending the cycle of rising prices.

(2007-12-02 22:30:19 SGT) [Biz] Permalink

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