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Thread: What makes the prices hike, meat or currency?

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[quote=ICEBERG,278967]Many reports have revealed that people in China have complained the hiking prices too much since their salaries haven't increased with the soaring prices and CPI. However, what makes the prices hike? These analysts and economists have different opinions. Since the pork price has surged and the supply even was insufficient during some time, some people attribute that the hiking prices is driven by the supply of meat. Other people argue that the excessive money in circulation is the main cause because China faces inflation risk. Whom do you agree with?

Article from Economist:

Sweet and sour pork“怪味”猪肉
Mar 13th 2008
From The Economist print edition

Are rising prices in China driven by the supply of meat or money?

IN A country where bouts of inflation have triggered social unrest, the jump in China's inflation rate to a 12-year high of 8.7% in February is cause for concern. But economists are sharply divided on the cause of this inflation and the degree to which policy needs to be tightened.

The People's Bank of China (PBOC) is expected soon to lift interest rates and banks' reserve requirements once again. Some people fear a repeat of 1987-88 or 1993-94 when high inflation forced the government to tighten monetary policy sharply, causing a hard economic landing.

One difference between today and previous surges in inflation is that the increase over the past year has been caused mainly by food prices, which jumped by 23%. Vegetable prices are 46% higher than a year ago, pork is 63% dearer. The impact of various supply shocks, notably blue-ear disease which killed thousands of pigs, were aggravated last month by the worst snowstorms for 50 years, damaging crops and disrupting transport. Non-food prices rose by only 1.6% over the past year. In 1994, by contrast, non-food inflation hit 20%.

To the extent that food prices have been pushed up by one-off supply factors, they should flatten later this year, causing inflation to fall. If so, it is argued, there is no need to slam on the brakes. Moreover, higher interest rates would do little to curb food prices. Some policy makers also worry that if China raised interest rates sharply at the same time as America is cutting them, this would attract bigger capital inflows and the extra liquidity could actually worsen inflationary pressures.[/quote]

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