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Abstract

Inflation in China is very often taken to be as common as flying horses. Naivety spared, if it stems from the general understanding that market forces are seldom scot-free in a controlled economy. More so, if one is talking about something declared as a part of national security. But, here is the truth. In 2007, inflation in China recorded 6.5%, the highest in 11 years - mainly due to price increase in pork, a Chinese staple. A country which boasts to be the world's largest producer of pork, was hit hard by blue-ear disease, killing as many as a million pigs in 2006 and increasing the prices of an important ingredient in pig feeding, corn. Consequently, the raising food prises stirred public agitation. None would be more sensitive to inflation than the ruling Communist Party, which rose to power in 1949 by the catastrophic inflation that destroyed the credibility of its nationalist rivals. Also it has to remember how two decades ago, inflation incited broader discontent that culminated in the Tiananmen Square protests of 1989. Worried establishment did take measures to contain inflation that have ironically been self-defeating. This case study can be used to debate whether the central banks (and even governments) can focus on the 'core' commodity prices, rather than the entire basket, to contain inflation.
Location:
Other setting(s):
2007

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Abstract

Inflation in China is very often taken to be as common as flying horses. Naivety spared, if it stems from the general understanding that market forces are seldom scot-free in a controlled economy. More so, if one is talking about something declared as a part of national security. But, here is the truth. In 2007, inflation in China recorded 6.5%, the highest in 11 years - mainly due to price increase in pork, a Chinese staple. A country which boasts to be the world's largest producer of pork, was hit hard by blue-ear disease, killing as many as a million pigs in 2006 and increasing the prices of an important ingredient in pig feeding, corn. Consequently, the raising food prises stirred public agitation. None would be more sensitive to inflation than the ruling Communist Party, which rose to power in 1949 by the catastrophic inflation that destroyed the credibility of its nationalist rivals. Also it has to remember how two decades ago, inflation incited broader discontent that culminated in the Tiananmen Square protests of 1989. Worried establishment did take measures to contain inflation that have ironically been self-defeating. This case study can be used to debate whether the central banks (and even governments) can focus on the 'core' commodity prices, rather than the entire basket, to contain inflation.

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Location:
Other setting(s):
2007

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