01/10/2008, 00.00
CHINA
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Inflation continues to grow; drastic measures from the government

In December, prices rose on 46 of the most widely consumed goods. The government is imposing price caps for "essential" goods, at least until the lunar new year. But the fear is that this could lead to shortages without affecting the causes of inflation.
Beijing (AsiaNews/Agencies) - Inflation advanced again in December: without giving precise information, the government admitted that prices continued to move upward on essential goods like food, oil, and public services. For this reason the State Council, headed by prime minister Wen Jibao, yesterday decided to impose strict limits on the cost of these goods, and banned "illegal prices", which means the imposition of "political" prices.
 
The government website warns that higher prices for petroleum products, natural gas, and electricity will not be permitted over the short term, and in any case until the lunar new year, in spite of their increase in the global market. Prices for services like water, fuel for heating, and public transportation are also being frozen. Large and medium-sized producers of "essential products" will be able to raise prices only with government approval, otherwise they will face stiff fines. The costs of medical care and the main agricultural fertilisers must also remain "stable".
 
Yesterday, the National Development and Reform Commission, the country's top economic planning body, admitted on its website that "in December 2007, prices of 46 kinds of major commodities, including refined grain, pork and other food, rose in China's 36 large and medium cities".
 
Experts maintain that limits will be imposed on prices for all the most important goods at least until the lunar new year, the biggest Chinese holiday, which this year falls on February 7.
 
Until now, Beijing has raised interest rates and monetary reserves in an effort to reduce liquidity, and has also granted subsidies to poor urban and rural families. But this did not halt inflation, which rose in November to the rate of 6.9 percent, the highest level since 1996, with food prices rising 18 percent and the cost of pork by over 50 percent.
 
The concern is that inflation could spark public protests, especially in rural areas and among the least prosperous. It is calculated that low income families spend between 30 and 50 percent of their money on food.
 
But experts are sceptical about these price controls, which could easily cause shortages and spur the black market, and are in any case only a temporary measure that does not act on the causes, since the prices of oil, grain, and other products are rising rapidly on the global market. They note that in the meantime, today the stock prices of Chinese food and energy producers have fallen sharply. In November, the government raised the price of petrol by 10 percent, after all the state refineries complained in October that they were operating at a loss and were cutting production, producing petrol shortages and long lines at the petrol stations. But this favoured a record increase in inflation. Huang Hai, vice minister of commerce, observes that the government will sell pork from its own reserves, to guarantee supplies until the new year, but he maintains that short-term improvements will be difficult. (PB)
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