People’s Bank of China (PBC) Governor Zhou Xiaochuan (周小川) said China is under “pressure” from capital inflows as a state newspaper said price controls could be imposed to cool the fastest inflation in two years.
Zhou reiterated government goals of “moderate” credit growth and stronger liquidity management at a forum in Beijing yesterday. The China Securities Journal said price limits are possible for food, citing unidentified sources.
The Shanghai Composite Index tumbled 4 percent yesterday, after a 5 percent plunge on Friday, amid speculation that surging inflation may trigger more monetary tightening.
Capital flowing into China because of easing in developed economies and speculation that the yuan will appreciate adds to money already in the financial system from record domestic lending.
“Everybody knows that inflation is a huge problem,” independent economist Andy Xie (謝國忠) said in a Bloomberg Television interview in Hong Kong. “The bottom line is that money supply has increased too much.”
Xie sees another interest-rate increase “soon.”
The US Federal Reserve’s decision to buy US$600 billion of US Treasuries came as China raised its benchmark lending and deposit rates for the first time since 2007.
Last month’s inflation rate of 4.4 percent was higher than any of the estimates in a Bloomberg News survey of economists.
Some emerging economies have grown quickly and face “pressure” from capital inflows as growth in developed nations has slowed, Zhou said.
Rising prices in China need attention and officials should “strengthen liquidity management and maintain moderate growth in credit and money supply,” he said.
China may impose price limits on food and toughen punishment of those found speculating on -agriculture futures including corn and cotton, the China Securities Journal reported, citing an unidentified person.
The government may also crack down on hoarding, offer food subsidies and hold local mayors responsible for ensuring vegetable supplies and controlling prices, the report said.
In May, the government said hoarders would be fined by up to five times the value of the commodities held, the paper said.
Corn prices in China jumped to a record yesterday as tightening supplies increased their investment appeal. Rice also reached an all-time high.
China has already sold sugar, cotton, corn, aluminum and zinc from stockpiles to ease supply shortages.
Vegetable prices in the first 10 days of this month jumped 62.4 percent from a year earlier, the Financial News reported yesterday, citing a survey by the Chinese Ministry of Commerce.
Prices have also jumped 11.3 percent from the start of this year, according to the newspaper published by China’s central bank.
Fan Gang (樊綱), a former adviser to the People’s Bank of China, said that inflation is being imported into China in the form of higher price for foods such as soybean oil and animal feed.
Policymakers will take action, he said.
Currency appreciation “may be used as a policy to deal with inflation and that would not only be good for the control of inflation, but also would be beneficial for the overall balance of the domestic economy and external economy,” Fan said at a forum in Singapore yesterday.
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