Economy

Inflation an obstacle for harmonious society

By Huang Shuo (chinadaily.com.cn)
Updated: 2010-12-01 15:12

A series of tough measures have been implemented by Chinese authorities to curb rising commodity prices, taken for granted as the foundation of social security in the face of unaffordable housing. The impact at home and abroad is a hike in consumer prices.

A State Council plenary session headed by Chinese Premier Wen Jiabao on Nov 17, 2010, focused on the current inflation and hike in food prices. The meeting offered an array of policies to rein in inflation with regulations in commodity supply, subsidy system, macro-regulation, market monitoring and other related areas. The tightening management by the country's State Council is aimed at production, transportation and supply sections of agricultural products, including crops, edible oil, vegetables, and cotton.

It also includes boosting the production and supply of coal, product oil, especially diesel, and making temporary interferences in daily necessities and capital goods prices if necessary. In the meantime, the Chinese government vowed to promote supervision to maintain stability of the market. Subsidies declared by the authorities are about to be improved toward the poor in rural and urban areas, and impoverished students at technical schools and colleges.

The Consumer Price Index (CPI), a major gauge of inflation, increased 4.4 percent in October year on year, strikingly higher than the 3 percent warning line set by the Chinese government. In fact, grain prices have become the main promoter in the rise of CPI, contributing to 74 percent of the CPI hike in October this year.

An array of factors push the Chinese CPI and increase the pressure of inflation, which poses a new threat to the country's social stability and people's livelihood. The hardship in daily necessities spending intensifies the difficulties of governance. Economic regulators jointly issued some urgent measures in dealing with the food prices hike and stabilizing public morale.

The rising food prices were attributed to China's foul weather this year, which affected agricultural output to some extent. The fast-growing industrialization and urbanization of China raised costs and consumption in agricultural products, which also contributed to the rise in commodity prices.

On the other hand, loose monetary policies by foreign countries such as the second round of quantitative easing (QE2) of US Federal Reserve aimed at issuing more cash to help the economy rebound, are aggravating the inflation in China.

Practically, over-issue of currency has been a global concern since the international financial crisis in 2008 triggered by the mortgage debt crisis in the US. It is considered the easiest solution for governments around the world, but that may cause some side effects, especially inflation, a monster traveling across economies throughout the world.

The approaches taken by the Chinese government to secure social stability and livelihood of the people are an intelligent and rapid response to the surge in commodity prices. A responsible stakeholder in the international community should first take accountability for the people, particularly the disadvantaged groups.

Subsidies offered to the poor by the State Council make sense. A harmonious society is based on the smooth livelihood of its people, which is not just an empty political slogan by Hu Jintao, general secretary of the Central Committee of the Communist Party of China.

In the context of globalization, China alone may not be able to overcome the difficulties of inflation. A moderate economic growth is OK for China and the world. Major economies should work together to discuss and negotiate unified actions against inflation. Liquidity in the global market has taken effect, and every economy is bound to be affected. Common sense is needed on the currency issue.

The author can be reached at larryhuangshuo@gmail.com.