CHINA'S blistering growth in consumer prices and new lending numbers in October surprised both market insiders and policy makers, igniting a fresh wave of concerns about the stubbornness of bubbles in the economy.
The jitters prompted the Chinese central government to announce on Wednesday a new round of remedial measures, including price controls and relief to poor households struggling to cope with mounting food prices.
Under the proposed policies, China would further provide subsidies to farmers and release state reserves of grains, edible oils and sugar on the market, as necessary, to guarantee adequate supplies.
Other government-led initiatives include cutting delivery costs, guaranteeing fuel supplies and cracking down on hoarding, according to a statement from the State Council, China's Cabinet.
Announcing the new policies in such an urgent manner underscored the government's anxiety over growing public expectations for further price hikes. However, the measures alone may fail to prevent prices from scaling new heights.
Inflationary pressure
China's economy is forecast to remain solid in the fourth quarter of this year, but inflationary pressure provides a timely warning of the need for the country to contain price rises in order to keep on the path of sustainable growth.
Many economists expect consumer prices to accelerate in the next two to three quarters, after they hit a 25-month high in October. Inflation has been driven by increasing costs of foods and raw materials as well as inflows of speculative money from overseas.
The concerns could lead the central government to adopt a more aggressive interest-rate hike stance, allowing the yuan to appreciate faster and further tightening credit as policy responses to rein in price increases.
China's Consumer Price Index, the main barometer of inflation, climbed 4.4 percent in October from a year earlier, according to the National Bureau of Statistics. The growth rate was the highest since September 2008, when it reached 4.6 percent.
October's CPI followed an increase of 3.6 percent in September. In the first 10 months of this year, the figure rose 3 percent - sending the central government's 3 percent target into a mission impossible territory.
Food costs, which account for one-third of the CPI basket, jumped 10.1 percent year on year in October, while the non-food costs gained 1.6 percent.
The nation's Producer Price Index, the factory-gate measure of wholesale inflation, climbed to 5 percent in October from 4.3 percent in September, indicating higher cost pressure as production becomes more expensive.
Chinese mainlanders are feeling the strains more than the data may indicate. Prices of basic necessities such as rice, cooking oil and clothing are much higher than a year earlier. Some vegetables and fruits doubled in prices over just the last few months.
Food prices are a sensitive issue with the mainlanders. Many consumers in big cities such as Shanghai and Beijing were said to be stockpiling some daily necessities, while people in Shenzhen were reported to be making trips across the border to Hong Kong, where prices remain lower.
Temporary relief
The latest policies mainly focus on controlling prices, increasing supplies and boosting consumption. Such administrative measures may work temporarily to tame expectations about inflation, but they don't necessarily solve fundamental problems in the economy.
The core of the problem is liquidity, both from inside and outside the country. Unless the government returns to a serious tightening stance in domestic money supply and takes effective measures to fend off inflows of hot money, prices may start to rise again after a short hiatus.