China steps up fight against food inflation

China has stepped up its fight against food inflation by announcing plans for price controls, the selling of government supplies, and subsidies to needy families, reported China's official press agency Xinhua News.

Some specifics include:

1) putting government reserves of grains, edible oils, and sugar up for sale

2) reducing the prices of power, gas, and rail transport for chemical fertilizer producers

3) offering temporary food price subsidies for the needy

4) increasing allowances for student canteens

5) making sure welfare benefits keep up with rising food price levels

In addition, the government will crack down on hoarding or speculation in major agricultural products.

China Securities Journal said local mayors could also be forced to take responsibility for insufficient vegetable supply and unstable prices.

The prices of food and overall consumer products have surged in China this year. October consumer prices surged 4.4 year-on-year and food prices an astounding 10.1 percent. Year-on-year inflation of food prices was 8.0 percent in September, 7.5 percent in August, and 6.8 percent in July.

Xinhua also said in the first 10 days of November, the average wholesale prices for 18 types of vegatable in 36 cities spiked 62.4 percent year-on-year, according to government data.

Food accounts for about one third of consumer purchases in the Chinese government's CPI calculation.

Chinese officials blame the surging inflation on economic growth and excessive liquidity, including the inflows of hot money from foreign countries.

On October 19, China's central bank raised the benchmark deposit rate by 0.25 percentage point to 2.25 percent and the benchmark lending rate by 0.25 percentage point to 5.56 percent.

It also recently raised the bank reserve requirement ratio, for the fourth time this year, by 0.50 percentage point.

There is increasing speculation China may raise interest rates again soon and the Chinese stock market has plunged in the past few trading sessions because of it.

China Securities Journal said November 19, the coming Friday, is a window for a rate hike opportunity because of the government's tendency to raise rates around the 20th of a month or on a Friday.

Email Hao Li at hao.li@ibtimes.com