China Makes New Anti-Inflation Move

[January 14, 2008]  BEIJING (AP) -- China's cabinet on Monday sharply increased penalties for price-fixing, expanding an anti-inflation campaign that has failed to cool a surge in politically sensitive food costs.

Food costs soared by 18.2 percent in November, pushing the overall monthly inflation rate to 6.9 percent, its highest level in 11 years.

Companies that hoard goods or try to fix prices can be fined up to 1 million yuan, or $130,000, up to 10 times the previous penalty, the cabinet said on its Web site.

The increased penalties are meant to "strike (at) the activities of driving up prices through hoarding or cheating," the government's Xinhua News Agency said.

The government accused Chinese instant noodle makers in August of pushing up food costs by illegally colluding to raise prices by up to 40 percent. It has given no indication whether it has evidence of illegal behavior by other producers.

The price surge, which began in mid-2007, has so far been limited to food and is blamed on shortages of pork and grain. The government raised gasoline and diesel prices in November to curb rising demand, but said that should add only 0.05 percentage points to monthly inflation.

The surge in food prices has been especially painful for China's poor majority, who spend up to half their incomes on food. And the government worries that sustained high inflation for food could start to push up prices in other parts of the economy.

Higher food costs will hit hard as China prepares for the Lunar New Year in early February, an important family holiday when households stock up on groceries to throw banquets.

Suppliers of meat, eggs and other food have been ordered to report price increases over 5 percent to the government.

In September, the government froze prices of cooking oil and some other basic food items that still are state-set. But prices for meat, vegetables, noodles and other processed food are dictated by the market and have risen sharply.

Beijing also has tried to increase food supplies by raising subsidies to pig farmers and imposing curbs on grain exports.

But Premier Wen Jiabao warned last week that with global prices for crude oil, grain and other commodities rising, pressure for Chinese prices to rise "is still great."

The monthly inflation figure for December has not been reported.

Beijing has raised interest rates repeatedly to curb a boom in construction and investment that regulators worry could lead to financial problems if borrowers fail to repay loans. Economists say the inflation spike is due to food shortages and has nothing to do with those concerns.

Local authorities have been ordered to pay subsidies to the poor to cushion the blow of higher food costs.

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On the Net:

Chinese cabinet (in Chinese): http://www.gov.cn

[Associated Press; By JOE McDONALD]

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