November 17, 2010

China sells stockpiled commodities to cut prices

China's government is trying to cool double-digit food price rises by releasing stored pork and sugar to boost market supplies, the Commerce Ministry said Tuesday (Nov 16).

The move comes after food prices jumped 10.1% on-year in October due to shortages of some goods. Overall inflation rose to a 25-month high of 4.4%, prompting concern Beijing might tighten economic controls and further slow China's growth.

The government is releasing stored frozen pork and sugar into the market to help "stabilise prices," said Commerce Ministry spokesman Yao Jian.

Inflation is especially sensitive in a society where poor families spend up to half their incomes on food. Rising incomes have helped to offset price hikes, but inflation erodes the value of savings and undercuts economic gains that help support the ruling Communist Party's claim to power.

Yao said the government also is taking steps to increase vegetable production, though he gave no details of that or the pork sales. Pork is China's staple meat and prices are closely watched to ensure poor families can afford it.

The jump in food costs came as Beijing is trying to steer China's rapid growth to a more manageable level and restore normal economic conditions following its stimulus-fueled rebound from the global crisis.

Inflation so far is confined to food but analysts have warned that stimulus money and a flood of bank lending coursing through the economy might add to pressure for prices to rise in other sectors.

Some analysts say food price inflation has passed its peak and should decline but Chinese media say the cost of some basic goods is still rising strongly.

According to local news, the price of meat and eggs rose 0.8% in the first week of November over a week earlier. A government spokesman said last week Beijing "needs to do more" to keep inflation under its 3% target for the year.

The government maintains stockpiles of grain, frozen pork and some other staples in case of shortages. It released stockpiled pork in 2008 after shortages caused China's last spike in inflation.