Move with far-reaching effects

The People's Bank of China (PBOC) delivered a jolt to global markets when it unexpectedly raised interest rates last week. Never mind that the small increase will have a negligible impact on China's economy. Even after the move, banks are charging companies less than 6 percent to borrow for a year in an economy in which output is growing at a yearly rate of well over 10 percent. At these rates, demand for credit will remain strong.

Never mind too that no one is clear what exactly was on the mind of the PBOC, China's central bank, when it announced the policy move. The first explanation most turned to was that consumer price inflation was rising too fast. But inflation only edged higher last month, and that was because of rising food prices. For everything apart from food, inflation has been falling since July.

It is hard to see how raising interest rates will help bring food prices into line - the recent price gains have been because of crop damage, rather than any surge in demand, and shortfalls in supply should prove short-lived.