China: skyrocketing inflation, consumer price controls take over
SHANGHAI, CHINA – AUGUST 31: (CHINA OUT) A Chinese man identifies a new issued 100 yuan note with an old one issued in 1999, at a bank on August 31, 2005 in Shanghai, China. Authorities issued new yuan notes today that largely resemble bills in circulation but with new marks meant to foil currency counterfeiters. New 100, 50, 20, 10 and 5 yuan notes, as well as a 1 jiao coin (10 Chinese cents), were available from the People's Bank of China. The design of the new bills, bearing a portrait of former Chinese leader Mao Zedong, remains the same as the last-issued 1999 series but incorporate new watermarks and other minor changes that will make it harder to duplicate, according to state media. (Photo by China Photos / Getty Images)
The inflationary data in China are particularly worrying both as regards the costs to consumption and as regards those to production, but, in addition to this phenomenon, the data show a strong division between what happens at the production level and what happens at the production level. happens to consumption.
Retail inflation (CPI) goes from 0.9% to 1.3% in May on an annual basis, but the most important figure is the very high production inflation, that is + 9% on an annual basis. This cannot fail to have effects, even substantial ones, on the profits of Chinese companies, especially when, as we have seen, it is not possible to download them on consumer prices. So the effects are on corporate profitability
If until the costs could be passed on to consumers there was an increase in profits, with the blocking of this economic transfer the profits (blue line) took a differentiated trend with respect to costs. A decline in profits can be managed for a long time only with public interventions that, for example, reduce the tax burden, otherwise, sooner or later, the profitability of capital will no longer be interesting and someone, even in Europe, will pay dearly.
Meanwhile, the government controls consumer costs. and core inflation, linked to food.
However, the latter still appears under control, at least in appearance, also because official Chinese data is always to be trusted with a good degree of prudence.
In confirmation of what is written above, the Chinese government has decided to intervene immediately: the Chinese government has decided to control the prices of pork, corn and wheat. A multiplicity of powers and ministries will be involved in the control and monitoring work. It is also a way of communicating that the CCP is trying to control basic costs for the population, but these measures rarely have any effect. High inflation will only have an effect, either as a loss of competitiveness or as a devaluation of the Yuan.
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The article China: skyrocketing inflation, consumer price controls take over comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cina-inflazione-alle-stelle-subentrano-i-controlli-sui-prezzi-al-consumo/ on Wed, 09 Jun 2021 14:46:35 +0000.