China readies price controls to tackle food inflation

Tuesday, 16 November 2010 23:12 - - {{hitsCtrl.values.hits}}

BEIJING (Reuters) - China will unveil food price controls and crack down on speculation in agricultural commodities to contain inflationary pressure that its central bank governor highlighted as a risk on Tuesday.

With consumer prices rising at their fastest pace in more than two years, the National Development and Reform Commission, the country’s top planning agency, is preparing a “one-two punch” of actions to rein in food costs, official media reported.

Such direct intervention would mark an escalation of the government’s efforts to tame inflation and underline its worries over the rapid run-up in food prices.

Possible steps include price controls, subsidies for shoppers, a crackdown on hoarding and price gouging as well as a system whereby mayors are made responsible for a basket of food items, the China Securities Journal reported. Those found speculating on corn or cotton will also be punished severely, it added.

“Price increases, particularly overly rapid food price increases, are the main economic problem faced by the country at present,” the report cited an unidentified source as saying.

“The policies that are being considered aim to contain the momentum and will be delivered in combination as a one-two punch,” it added.

Consumer price inflation sped to a 25-month high in October, with prices rising 4.4 percent from a year earlier. Food, which makes up about a third of China’s consumer price index, led the way, climbing 10.1 percent. Non-food items increased just 1.6 percent.

However, unlike past bouts of food inflation in China, there have been no major droughts or diseases to drive up prices this year. Instead, fast money growth appears to be the primary culprit.

At a regular briefing on Tuesday, the commerce ministry pointed its finger at factors beyond China’s borders.

“Imported inflationary pressure has contributed to the big rise in China’s food prices. Global prices of grains, cotton and edible oil have been rising noticeably,” spokesman Yao Jian said. China used food price controls to limited effect when inflation flared up at the end of 2007. With market forces dominant in the agricultural sector, the government struggles to steer the cost of food, though the announcement of controls can help to anchor inflationary expectations.

WATCHING PRICES

China’s economy is growing in line with the government’s road map, but price rises are a concern, central bank chief Zhou Xiaochuan said on Tuesday.

“Upward pressure on prices needs to be watched. We will continue to maintain appropriate growth of money and credit,” he said.

Zhou said that a two-speed global recovery posed complex challenges.