Panic buying as price woes hit home
By Wang Yanlin |
April 1, 2011, Friday
|
Print Edition
Print Edition
WASHING powder shelves were empty at an RT-Mart outlet in Yangpu District last Sunday night, and only a few scattered packages of table napkins remained where once there were stacks of them.
That old bugaboo "inflationary expectations" has infected shoppers in Shanghai, who are rushing to buy up goods in anticipation that prices will be higher tomorrow than today.
The wave of what some are calling "panic buying" has hit supermarkets, shops and even online shopping websites across the city, media reports said on Monday.
That followed reports that some goods - including instant noodles, soap and shampoo - will become considerably more expensive from April. Disconcerting news for Chinese consumers already haunted by the specter of months of unbridled inflation.
"People are overreacting," said Sun Lijian, an economist at Fudan University. "But you can't blame them when so much news about price increases springs up everywhere, warning that you may wake up the next morning and see a higher price tag on the product you want to buy."
The Consumer Price Index, which measures broad price fluctuations, seems to be invading the public psyche. Even unsophisticated old peddlers on the street now know the phrase CPI.
Li Maoyu, an analyst at the Changjiang Securities Co, said the vast majority of consumers in China remain price-conscious. For daily necessities, price changes rattle the nerves.
"Inflationary expectations have hardly eased despite the government's intensive efforts to rein in price advances," Li said.
On March 18, the People's Bank of China ordered commercial banks to set aside more money as reserves, soaking up liquidity in a bid to contain inflation. It was the third time in three months that China's central bank announced an increase in the reserve requirement ratio, which is now at a record 20 percent.
That level, coupled with another interest rate hike in February, means that the nation is undergoing an unprecedented tightening of the economy in terms of recent history. The Chinese government has publicly stated that inflation is enemy No. 1 and it will take all steps to control prices this year.
However, inflation remains stubborn. In February, China's CPI expanded 4.9 percent from a year earlier, the same rate as in January. That's above the government's 2011 target of 4 percent inflation. Worse, some economists are predicting that inflation may have accelerated to 5 percent in March.
The National Development and Reform Commission, China's top economic planning agency, said last week that consumer prices in the first quarter may have risen about 4.9 percent. The agency predicts that the inflation barometer may rise between 4.8 percent and 5 percent in the first half.
What can policy makers do next?
Several economists said tightening credit further or raising interest rates again may be unwise and is unlikely.
"In the light of proactive liquidity management, together with a still-strong bias to foster growth, the risk of an immediate further interest rate hike is ebbing for now," said Wang Qing, a Morgan Stanley economist. "In this context, although we are sticking to our call for two more rate increases in the first half of this year, we expect they will occur in May or June, when the CPI is expected to push higher."
One problem with higher interest rates is that they risk an even heavier flow of speculative funds into the country as investors chase yields. So-called "hot money" threatens to roil already troubled equity and housing markets, while heaping more pressure on China to accelerate reform of its exchange-rate system.
Policy makers do seem reluctant to raise rates for now.
Zhang Xiaohui, director-general of the department of monetary policy at the People's Bank of China, praised government bill issuance and the reserve requirement ratio as key tools in liquidity management.
She was quoted in a recent article posted on the bank's website as saying that such tools would be gradually strengthened as financial reform proceeds in the longer term, but that the central bank may continue to rely on quantitative measures for the time being.
All the economic jargon falls on pretty deaf public ears. Consumers watching prices go up week by week often don't understand the economics behind the increases or the government's remedial measures. They just see their wallets shrinking fast.
That old bugaboo "inflationary expectations" has infected shoppers in Shanghai, who are rushing to buy up goods in anticipation that prices will be higher tomorrow than today.
The wave of what some are calling "panic buying" has hit supermarkets, shops and even online shopping websites across the city, media reports said on Monday.
That followed reports that some goods - including instant noodles, soap and shampoo - will become considerably more expensive from April. Disconcerting news for Chinese consumers already haunted by the specter of months of unbridled inflation.
"People are overreacting," said Sun Lijian, an economist at Fudan University. "But you can't blame them when so much news about price increases springs up everywhere, warning that you may wake up the next morning and see a higher price tag on the product you want to buy."
The Consumer Price Index, which measures broad price fluctuations, seems to be invading the public psyche. Even unsophisticated old peddlers on the street now know the phrase CPI.
Li Maoyu, an analyst at the Changjiang Securities Co, said the vast majority of consumers in China remain price-conscious. For daily necessities, price changes rattle the nerves.
"Inflationary expectations have hardly eased despite the government's intensive efforts to rein in price advances," Li said.
On March 18, the People's Bank of China ordered commercial banks to set aside more money as reserves, soaking up liquidity in a bid to contain inflation. It was the third time in three months that China's central bank announced an increase in the reserve requirement ratio, which is now at a record 20 percent.
That level, coupled with another interest rate hike in February, means that the nation is undergoing an unprecedented tightening of the economy in terms of recent history. The Chinese government has publicly stated that inflation is enemy No. 1 and it will take all steps to control prices this year.
However, inflation remains stubborn. In February, China's CPI expanded 4.9 percent from a year earlier, the same rate as in January. That's above the government's 2011 target of 4 percent inflation. Worse, some economists are predicting that inflation may have accelerated to 5 percent in March.
The National Development and Reform Commission, China's top economic planning agency, said last week that consumer prices in the first quarter may have risen about 4.9 percent. The agency predicts that the inflation barometer may rise between 4.8 percent and 5 percent in the first half.
What can policy makers do next?
Several economists said tightening credit further or raising interest rates again may be unwise and is unlikely.
"In the light of proactive liquidity management, together with a still-strong bias to foster growth, the risk of an immediate further interest rate hike is ebbing for now," said Wang Qing, a Morgan Stanley economist. "In this context, although we are sticking to our call for two more rate increases in the first half of this year, we expect they will occur in May or June, when the CPI is expected to push higher."
One problem with higher interest rates is that they risk an even heavier flow of speculative funds into the country as investors chase yields. So-called "hot money" threatens to roil already troubled equity and housing markets, while heaping more pressure on China to accelerate reform of its exchange-rate system.
Policy makers do seem reluctant to raise rates for now.
Zhang Xiaohui, director-general of the department of monetary policy at the People's Bank of China, praised government bill issuance and the reserve requirement ratio as key tools in liquidity management.
She was quoted in a recent article posted on the bank's website as saying that such tools would be gradually strengthened as financial reform proceeds in the longer term, but that the central bank may continue to rely on quantitative measures for the time being.
All the economic jargon falls on pretty deaf public ears. Consumers watching prices go up week by week often don't understand the economics behind the increases or the government's remedial measures. They just see their wallets shrinking fast.
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