Government vows to tackle inflation, price controls in reserve

09:12, November 18, 2010      

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The government will intervene to control consumer prices if they rise too quickly, the State Council said Wednesday, a move that will do little by itself to tame inflation but could foreshadow harsher monetary tightening.

  Steps to cool demand in China, the world's fastest-growing major economy, could weigh on global markets at a time when recoveries in Europe and the United States remain fragile.

  To begin with, the State Council, or cabinet, said it would aim to increase the supply of commodities, especially food, that have driven inflation to a 25-month high, while also clamping down on speculative demand that has lifted prices higher.

  The State Council singled out grain, oil, sugar and cotton as markets that it wanted to stabilize. It also vowed to intensify a crackdown on price speculation and to punish those found hoarding commodities and pushing up prices by illegal means.

  The statement made no mention of monetary policy.

  "I don't believe that they will just stop here," said Kevin Lai, an economist with Daiwa Capital Markets. "Many people in the government are capable enough to figure out that prices controls are not that effective."

  "They really have to do something more about controlling liquidity and money supply growth if they are serious about containing inflation," Lai said, adding he expects the central bank to raise interest rates within two weeks.

  "The government often opts for iron-fisted administrative measures to control prices when inflation becomes a serious problem," said Shi Chenyu, an economist with the Industrial and Commercial Bank of China. "However, harsh administrative measures may backfire as expectations of further price rises may intensify."

Source: Global Times


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