China still doesn't understand the Free Market

Price controls on food simply mean that the resulting shortage will have to be solved in other ways. For example, people who get to the store first will get the food. Also if they can't raise prices, they can lower the quality of food sold (e.g., not throwing out spoiled food as quickly). The article below makes the weird claim that these controls show that Beijing is "serious" about dealing with inflation. If they were serious, a simpler solution would be to control the growth of the money supply.

SAN FRANCISCO (MarketWatch) -- In the latest sign that officials in Beijing are serious about reining in rampant inflation, China tightened controls on food prices Wednesday, requiring producers to seek government approval to implement any price increases.
According to an official Xinhua news report posted on the government's English-language Web site, China's top economic planner announced price controls on a package of products, including grain, edible oil, meat, milk, eggs and liquefied petroleum gas. See Chinese government Web site.
"Major enterprises are required to submit the price-raising scheme to the government for official approval 10 working days before they intend to raise the prices," said the National Development and Reform Commission, or NDRC, in a circular on interim price intervention.
"This NDRC directive is stricter than expected, pointing to escalating inflation pressures in China," wrote Ting Lu, Merrill Lynch's Hong Kong-based economist.
China's inflation rate hit an 11-year high of 6.9% in November. The consumer price index climbed 4.6% in the January-to-November period, exceeding the central bank's official target, which pegs CPI growth in a range up to 3%.
"We think price control will not be very effective as it's hard for the government to guarantee quality and quantity and to avoid shortage. We thus expect the government to increasingly use monetary tightening tools such as rate and [reserve requirement ratio] hikes to tame inflation," Lu said. . . .



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