By Agency reporter

Thursday, 18 Nov 2010

Beijing: China‘s cabinet confirmed that the government might impose temporary price controls on ”important daily necessities” and production materials to counter the fastest inflation in two years, Bloomberg reported on Wednesday.

The State Council also pledged on Wednesday to stabilise natural gas prices, crack down on speculation in agricultural goods and ensure the supply of vegetables, grain, cooking oil and sugar. Price caps will be used if necessary, the council said in a statement on its website after a meeting chaired by Premier Wen Jiabao.

The Shanghai Composite Index has fallen 10 per cent from an almost seven-month high on speculation that Wen‘s efforts to cool prices will be a drag on growth in the world‘s second-biggest economy. The government is wrestling with inflation that accelerated to a 4.4 per cent annual pace in October and inflows of cash that may fuel increases in consumer prices.

”Inflation is clearly the top concern for policy makers,” said Mr. Ken Peng, a Citigroup Incorporation economist in Beijing. ”Price controls can be effective in the short term.”

Peng sees the central bank raising interest rates next month and said the government will also seek to limit credit growth after targeting $1.1tn of new loans this year.

Shanghai‘s benchmark index fell 1.9 per cent, after a four per cent decline on Tuesday.

Wednesday‘s statement followed a report in the China Securities Journal on Tuesday that price limits were possible for food and punishments could be strengthened for speculation in agricultural goods.

The government should recognise the ”importance and urgency” of tackling prices, the State Council said.

China in January 2008 temporarily froze prices for oil products, natural gas and electricity, as well as daily goods and school and transportation fees, to counter inflation that surged to the fastest pace in more than a decade.

October‘s inflation rate was higher than any of the estimates in a Bloomberg News survey of economists. The government is also seeking to cool property prices as money flows into the economy from the trade surplus and investors abroad betting on gains by the yuan and the economy.

 

Source: Punch