More inflation sparks

(China Daily)
Updated: 2010-04-01 07:48
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Editor's note: Those who attempt to make money from national calamity will get heavy penalty. But the measures seem not enough to uproot inflation.

The warning from the authorities was loud and clear: Food producers, such as the factories located in Liuzhou and Nanning of the Guangxi Zhuang autonomous region who collectively raised the wholesale prices of uncooked rice noodle in January, will receive heavy penalties for ramping up their prices.

As the worst drought in decades shows little sign of easing in Southwest China, it is a matter of urgency for policymakers to brace for a hard fight against inflation.

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But it's not enough in dealing with inflation, nor is it effective for authorities to simply intensify their enforcement against price hikes and crack down on price gouging.

Though the measures are attempts to keep a lid on domestic prices, the initiatives can do little about the surge of international prices for important commodities that will eventually stoke domestic consumer inflation.

For instance, if international iron ore prices double this year, it is more than likely that domestic steel prices will soar by a large margin, pushing up the cost of household necessities such as domestic appliances.

The measures to prevent the huge rises in domestic prices also can't replenish the supply or check demands to tame inflation.

The dry weather has been ravaging Southwest China for months and has sparked fears of an inflation in food prices. If the country has an abundance of food reserves, it is the government's duty to mobilize these food reserves to drought-hit areas.

More importantly, if the rise in domestic prices is stronger than expected, policymakers should tighten the credit tap quickly.

The government has anticipated a 3-percent consumer inflation for this year. But that inflation target was announced before the drought became so serious. What this country needs is preemptive monetary tightening to effectively check upward trends on prices.

(China Daily 04/01/2010 page8)