萨拉海蓝德和taylor:Better prepare a cushion for inflation

Better prepare a cushion for inflation 11:22, March 03, 2011
Email | Print | Subscribe | Comments | Forum
By Li Hong
Prices have climbed broadly from Asia to Europe to America thanks to outsize or "quantitative" credit supplies by central banks and governments desperate to head off a prolonged crisis and economic recession.
Though the possibility of deflation – enemy No 1 for the US Federal Reserve -- is all but eliminated amid a flooding of liquidity, the chance for global inflation and subsequently economic stagnation looms large.
Most economists agree the two rounds of Quantitative Easing by the Federal Reserve – throwing to the marketplace of more than 2 trillion dollars, and other major economies' extraordinary fiscal stimulus plans, have caused a global credit binge. Although the heavy hand succeeded in averting a deeper crisis comparable to 1929-32 Great Depression, it has also led to price rises of all industrial materials and inflation across the board.
In January, consumer prices in Europe and core wholesale prices in the U.S. both climbed to their highest level in two years. Inflation in the euro-zone is approaching 2.5 percent or more, and in Britain, inflation is on course to hit 5 percent. The prices have risen more rapidly in the emerging economies, including China.
To make things worse, the political tumult raging in the Middle East and North Africa, the epicenter of oil production, has no signs of abating. The prospect of another oil shock, similar to the one following the OPEC crude embargo in 1973, sends shivers to the bones.
The soaring price of oil, the mother of all commodities, is likely to translate to steady rises in consumer price indexes, and exacerbate people's expectations for more price hikes in the coming months.
The lawlessness and military strife unfolding in Libya, an OPEC member, has brought the world to $100-a-barrel oil again. The world is thirsty for the fossil fuel, and supply and demand are in delicate balance. The thought that the chaos might cascade and extend to other heavyweight OPEC countries in the region has set all of us on edge.
Now, ordinary folks all around the world, those of the emerging economies like China, India and Brazil, especially, are complaining a mind-boggling rise of prices, from oil to housing, to food and daily necessities.
The double "whammy" of frequently disastrous weather patterns and rapid unplanned growth of population on our globe will seriously strain the already thin supply of grain. A few more droughts and floods this year are likely to chase food prices to unbearable highs.
Alarm bells are ringing for a slew of governments that social tranquility is at stake, if the current spike in prices of food, oil and public services is not stopped, causes more people to tighten belts, and begins to harden the life of the middle class, the so-called backbone of stability.
Rapid inflation impacts people's livelihoods and may affect social stability, admitted China's Premier Wen Jiabao in online chat a few days ago. "I know the impact that prices can cause a country and I am deeply aware of its extreme importance."
The war on inflation is being fought globally, although some central banks, including the Federal Reserve, remain cautious about high unemployment rates and anemic recovery, and debating among themselves whether inflation is really coming to them.
China's government was quick to wind down its stimulus plan and hit the pedal to tighten money supply. A range of tools aimed at taming price increases have been used, including raising interest rates and banks' reserve requirement ratios. China has, stridently, restricted the number of apartments and villas investors can buy, to cool runaway prices of urban properties.
Beijing has fanned out water irrigation and agriculture experts to provide on-spot advice and help to farmers so that the country could make up for the loss of wheat production, incurred by a sweeping drought in winter. It has made abundant vegetable supply a responsibility of all the mayors.
Lately, Premier Wen has proposed a rise in the threshold of taxable personal incomes, and the National People's Congress is expected to approve it. People's response to the tax reduction is overwhelming, for more money in the pockets brings a cushion to inflation.
The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.
Post your comments: