June 24, 2021

China Moves to Tame Inflation Before Prices Rise Too Much

For some goods, prices are indeed rising. Paper manufacturers have raised bulk volume prices for products like napkins and toilet paper four times this spring. Soybeans for tofu are becoming costlier.

But for now, Chinese manufacturers, rather than consumers, are feeling the price increases. Wholesale prices in China were almost 7 percent higher in April than a year earlier, when the pandemic was holding down prices. Costlier iron ore from Australia and corn from the United States account for much of that rise.

China’s cabinet announced subsidies a week ago for small businesses to help them afford spiraling costs for commodities. New limits have been imposed on the trading of commodities for future delivery to discourage speculation. Export taxes have been raised on some kinds of steel to keep more of the metal inside China.

At a cabinet meeting on May 19, Premier Li Keqiang ordered officials to “resolutely crack down on monopoly and hoarding in accordance with laws and regulations, and strengthen market supervision.”

Government measures may slow but not stop wholesale price increases. Companies stuck with rising costs for raw materials eventually find ways to raise prices or else just suspend production. Paper producers, trapped between surging costs for raw pulp and a variety of pressures not to raise paper prices, have shut down some of their factories for maintenance this spring.

So far, price increases don’t appear to be trickling down to China’s consumers. One reason is that the Chinese domestic economy has not yet fully recovered from the pandemic. Lackluster consumer spending means fewer households are bidding up the prices of goods like pork chops, which have become a little cheaper lately, and even men’s underwear, for which prices have not changed.

Vendors at a covered market in Shanghai said on a recent afternoon that they saw no sign yet of rising food prices. Egg and beef prices, for example, were little changed.

Article source: https://www.nytimes.com/2021/06/08/business/economy/china-inflation.html

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