"On a slow afternoon, trader A decided to open a market for a can of sardines. Bidding started at $1. B bought it for $2 and sold it to C for $3. D and E decided to get into the act, with the result that E became the owner for $5.E decided to open the can and discovered the sardines had gone bad. He went back to A to get his money back, protesting that the sardines were rotten. A smiled broadly, and said, " You don't understand. Those were trading sardines, not eating sardines."
Play this dynamic chart to get more details about recent inflation number. This is the US inflation.
Wall Street Journal reports that China’s headline inflation may spread:
Within China, there are also signs that price rises, so far concentrated almost entirely in food, are now spreading to other goods and services. That could be worrisome to policy makers, who have repeatedly declared that their main goal is to prevent isolated food-price gains from turning into broader inflation. Among the risks: Inflation could weaken the consumer spending that has helped support economic growth.The increase in China’s consumer-price index excluding food accelerated to 1.8% in March, after hovering at 1% or less for almost all of 2006 and 2007, according to the National Bureau of Statistics. The acceleration likely reflects how higher wages and raw-material costs are feeding into price rises for a broader range of goods, phenomena that have global implications given China’s importance as a supplier of many products.Another contributor is higher rents, thanks to continued price rises in most urban-property markets. J.P. Morgan economists expect nonfood inflation to continue to speed up to an average 2.5% for all of 2008.
Very imprudent policy…danger of being perceived as neo-colonism. Why is this better than just importing food?
More sensible policy alternatives would be to focus on providing more incentives for Chinese farmers to upgrade their farming technology and improve productivity on China’s home land.
Chinese companies will be encouraged to buy farmland abroad, particularly in Africa and South America, to help guarantee food security under a plan being considered by Beijing. A proposal drafted by the Ministry of Agriculture would make supporting offshore land acquisition by domestic agricultural companies a central government policy. Beijing already has similar policies to boost offshore investment by state-owned banks, manufacturers and oil companies, but offshore agricultural investment has so far been limited to a few small projects. (source: FT)
At the beginning of 2007, China began quoting the Shanghai Interbank Offered Rate (SHIBOR) as part of its financial market reform programme with a view to implementing a market-based interest-rate regime. Official sources say the use of SHIBOR as a reference rate has clearly increased. However, use of SHIBOR varies significantly depending on the instrument and the matur-ity. SHIBOR rates are mainly used at present as a refer-ence rate for contracts of less than three months, which illustrates the actual thinness and underdeveloped state of Chinese financial markets.
By some estimates, use of reference rates has remained lower than hoped, which is evidenced by the grown inter-est rate spreads between different instruments. Currently, the three-month SHIBOR is about one percentage point higher than the rate for central bank bills. The situation may reflect problems in setting reference rates, or it could show that the central bank is using the opportunity to sell its own bills below established market rates. There is essentially no difference between the one-week and overnight SHIBOR and repo rates, which implies that these short-term markets function reasonably well.
The goals of reform of the interest rate regime include increased awareness of interest-rate risk among banks and deepening China’s financial markets. These conditions must be met before China can shift from a monetary policy regime based on regulation of the quantity of money to an interest-rate-based system. China’s long-term goal is a market-based financial system, but the central bank cur-rently imposes strict limits on bank lending and deposit-taking. The general ceiling set by the central bank today for the bank deposit rate (3-month) is 3.33 % and the low-est lending rate (6-month) is 5.91 %.