Tuesday, June 1, 2010

Govt Worried about inflationary expectations

Today, in an interview with a Xinhua news service reporter, Peng Sen, the vice chairman of the National Development and Reform Commission concurred that "hot money" flows were one of the factors driving up prices of some agricultural commodities.

According to Peng, drought and low temperature at the beginning of the year set off rises in japonica rice and vegetable prices. Then medicinal herbs started rising in March and April. At the end of April and early May garlic and bean prices started rising a lot. The retail price for dried garlic reached 8 yuan per jin, and mung beans are over 10 yuan in some supermarkets. In May, new garlic came on the market and the price already started falling. Now the new garlic price is already down to 2 yuan per jin. (Yesterday's post on this blog shows that the garlic situation is more complicated than portrayed by Peng.)

Peng said there was also some investment capital going into markets for garlic and mung beans--products where the production is geographically concentrated, seasonal, production has fallen, and market information is inaccurate. There was malicious hoarding and driving up of prices, disrupting market order.

Peng pointed out the last year banks gave out over 9 trillion yuan in loans. Real estate prices and stock markets went up, and a lot of money went into those markets. This year the state issued some policies to contain the growth in real estate prices and the stock market fell. In this situation a lot of money migrated into some agricultural markets.

Acording to the Xinhua report, the government is worried that the soaring prices for a few commodities will have a "demonstration effect," raising inflationary expectations and putting upward pressure on prices of other commodities.

In the interview, Peng warned, "Hoarding and spreading rumors are building inflationary expectations, adding fuel to the fire."

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