Feeling Inflation’s Pinch, Chinese ‘can’t change the price tags fast enough!’ (Video)

November 10, 2010 7:15 am Last Updated: November 11, 2010 4:04 am

[ Cost of Everyday Goods on the Rise in China – NTDTV ]

A new wave of price increases has hit China. Cooking oil, liquor, and instant noodles have increased 10 to 20 percent. “We can’t change the price tags fast enough!” said a purchasing staffer in a Beijing supermarket.

“Take cooking oil for example, we get three or four notices a day to increase the price,” the staffer said to Hong Kong’s Apple Daily.

For consumers facing worsening inflation, an average family has to increase its budget by at least an equivalent of about a hundred U.S. dollars each month. A housewife who cooks three meals a day quickly feels the pressure.

One such victim of inflation is Liang from Guangzhou who has to cook for a family of six. Just last year, her family could eat heartily for 1,200 yuan (US$180) a month. This year she needs to spend 2,200 yuan (US$330) per month to maintain the same quality of meals.

A former deputy director of the People’s Bank of China, Wu Xiaoling, admits that, “In the past 30 years, we printed too much money to push for fast economic development.” She adds that to cope with the financial crisis, the central bank adopted an extremely loose policy for issuing currency. Wu is currently the Vice Chairwoman of the Finance Affairs Committee of the National People’s Congress, and acts as the director of the Lujiazui International Financial Research Center of the China Europe International Business School.

While a recent article in China Economic Weekly reports that the People’s Bank of China (PBC) has increased the interest rate by a quarter of a percent, one independent economist, Xie Guozhong expressed the view that “It’s just too late to raise interest rates,” in an interview with Qingdao News. “The problem of over-issuing currency has caused serious problems.” He worries that the People’s Bank should have already slashed spending to curb inflation.

Xie continued, “The price of agricultural products such as mung beans, ginger, garlic and chili pepper have skyrocketed. This is the end result of the PBC’s issuing more currency than can possibly balance production. The excessive amount of money infused into the economy over the past several years brings an enormous risk of inflation to our country.”

The gobs of cash entering the Chinese market have to be absorbed. Some experts believe that last year the stock market absorbed a great amount of liquid currency when stock prices doubled. Then in the first quarter of this year, the soaring residential property market also absorbed some liquidity.

However, many metropolitan regions recently issued limits for housing sales, consequently cooling the real estate market. What remains for inflationary processes to gobble up may only be agricultural products and other goods. Many believe that this is currently the case with the soar in the cost of daily necessities.

Zhou Qiren, member of the Currency Policy Committee of PBS, also agrees with the correlation between the bloated currency pool and inflation. In his blog, Zhou recently warned that “the currency tiger is growing” and cautioned of the need to strictly control the issuing of currency.

China’s official data shows that ten years ago, China’s total Gross Domestic Product was one and a third trillion U.S. dollars, while the country’s broad money supply (meaning the amount of money in circulation) was about two trillion. This amount equates to 670 billion U.S. dollars over China’s total GDP.

Comparing 2009 figures in U.S. dollars, China’s GDP was about five trillion with a money supply of nine trillion, equating to four trillion U.S. dollars over the productive capacity of China. In other words, almost twice as much money as desirable has been floated into the monetary system.

The gap between money supply and GDP continues to increase. According to China’s National Bureau of Statistics, that gap rose to a whopping US$6.44 trillion by the end of last quarter. At the same time, the Bureau recorded the highest Consumer Price Index increase in almost two years and the overall cost of food reached 8 percent higher than in September 2009.

Read the original Chinese article.