Beijing confirms price controls in inflation fight

PUBLISHED : Thursday, 18 November, 2010, 12:00am
UPDATED : Thursday, 18 November, 2010, 12:00am

Beijing confirmed yesterday it would impose temporary price controls in an attempt to contain the mainland's worst inflation in a decade amid rising social discontent.

The State Council pledged to adopt both 'short-term contingency measures' and 'a long-term mechanism' to curb apparently increasingly rapid price rises, Xinhua reported. By short-term measures, the council specifically mentioned 'temporary price control over key daily necessities and production materials when necessary', according to the statement, released after a regular meeting chaired by Premier Wen Jiabao .

Measures that Beijing is ready to take will cover four areas. These are: expanding supplies of daily necessities including sugar, grain, edible oil and vegetables; increasing subsidies for low-income households; hinting at slowing down price reforms and, when necessary, imposing price caps on certain daily necessities; and cracking down on hoarding, speculation and other attempts at market manipulation.

One noticeable move in slowing price reform could come with the suspension of plans by local authorities, including the Beijing municipal government, to increase prices.

The State Council statement urged government agencies to be careful in their management of 'the timing, rhythm and force' in price administration and 'make sure that the natural gas price remains stable', Xinhua said. Many urban households depend on natural gas for daily cooking and, in some cases, for heating.

But the government's intention to resort to administrative price controls, smacking of a planned economy, is bound to be controversial. Many economists have argued that such price controls can only bring temporary relief, and more monetary reforms are needed to eradicate the cause of inflation.

The State Council said the main trouble lay with major daily necessities, led by agricultural products.

With the Consumer Price Index rising 4.4 per cent year on year in October, the Ministry of Commerce reported on Tuesday that in the first two weeks of this month the average retail price of 18 types of vegetables rose by as much as 62.4 per cent from the same period last year, and 11.3 per cent from the beginning of this year.

As part of the counter-inflation measures recommended by the State Council, every effort is to be taken to boost farm production for the rest of the year, along with efforts to ease a shortage of diesel in many provinces.

In the farm products market, along with a government crackdown on hoarding and price manipulation, the State Council also plans to strictly regulate on futures and e-commerce, which have reportedly caused 'excessive speculation' and 'illegal transactions'. Only merchants who possess the right qualifications are allowed to engage in obtaining grain and cotton.

For low-income sectors, the State Council promised to provide additional temporary subsidies to welfare-dependant households, as well as students from poor families. Regional social security benefits should be tied to the price rises, while the basic pension, unemployment benefit and minimum wage will all be raised step by step.

All measures announced by the council are aimed at short-term results.

What is in store for the long-term remains to be seen but, as Zhou Xiaochuan , central bank chief, indicated on Tuesday, they may include a monetary policy to drain liquidity, or investors' money, from the domestic market.

Heading up

The Consumer Price Index reached this level, in percentage terms year on year in October: 4.4%

Raw deal

This month the average price of 18 types of vegetables rose, year on year, by as much as: 62.4%