World Bank China Quarterly Update: Conference Call Transcripts

Tuesday, February 19, 2008 10:34
Posted in category Uncategorized

Real quickly.

Following my post earlier this week on the World Bank’s call on its Quarterly China update, I have been passed the link where readers can go to see the transcript of the call.

In reading through the transcript, there are a few questions that I think were quite interesting, and the responses were as well including the question from Chris Jeffrey on FX sterilization and the three part question by Deborah Chu.

however, and I’ll open this up to you the reader, in the transcript it is said several times that inflation has not gone beyond food to a lare extent, and that the government is taken action to prevent it.

In my mind though, the actions of the government are actually preventing an accurate read of just how serious the spillover is. they have frozen a number of prices for goods in a number of sectors, and while the recent CPI figure was announced at 7.1%, many believe that it is much higher.

So, and I am opening this up for comments, has inflation been largely contained? Or has it been hidden with price freezes?

I have a request in to speak with the leaders of the call for this, but I would enjoy reading any perspectives on this issue as I am growing more and more weary of the statistics I am seeing, and how people read them.

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4 Responses to “World Bank China Quarterly Update: Conference Call Transcripts”

  1. Jeremy says:

    February 19th, 2008 at 5:55 pm

    Hi Richard,

    CPI is a very distorted measure of inflation. The inflation that matters the most is inflation of the money supply. CPI is only one set of prices – plus, it’s pretty easy to manipulate seeing how the old methods of calculation (for the US from 20+ years ago) would show rates of CPI inflation about 3-4% higher than the official numbers.

    If you really want to go down the rabbit hole, read this work by de Soto, called Money, Bank Credit, and Economic Cycles:

    http://www.mises.org/books/desoto.pdf
    (warning: very large PDF file. May cause slower computers to freeze)

    And ps – inflation in the true sense is far, far from contained in China. One only has to look at the stock or housing bubbles of recent years here to see this. Whether the CPI continues to rise is an issue that still largely rests within the indirect control of China’s central bank.

  2. Duncan says:

    February 19th, 2008 at 7:19 pm

    Inflation can be contained by controls if it is purely a temporary phenomenon. Arguably price controls are a sensible response to the inflation spike if it’s a food supply shock related phenomenon. Should agricultural prices come down sharply, this would allow the government to let prices for those sectors it effectively controls through monopolies/price caps (education, transport, fuel, communication) to rise again. Overall inflation would, in this situation, remain relatively higher than before, but not crazy by any means.
    The key question is whether the agricultural price spike is temporary. It’s been heavily driven by the pig disease (which was temporary, but supply looks to be having trouble realigning), rising grain prices and the cost of fuel (which pushes up the transport cost element of foods). At least on the latter there’s the hope that with global prices stabilising and even coming down a bit, and the renminbi appreciating local fuel prices could remain steady. But who knows what the weather’s going to do – just look at Jan-Feb. All a bit of a gamble really…

  3. Rich says:

    February 19th, 2008 at 7:20 pm

    Thanks Jeremy,

    Like I said.. I have grown skeptical of the figures, and of some of the analysis, given all the efforts the central party has gone through to cap pricing.

    Anyone know if the pricing cap was lifted? I saw a couple of reports that food costs rose 10% in last week or two, but no idea if that was of “capped” goods or something outside that.

    R

  4. Rich says:

    February 20th, 2008 at 4:42 am

    Duncan,

    Comments appreciated. the big what if for me in terms of staples is Biofuel and the fact that China is not using a lot of corn up to create ethanol. This drives not only consumer pricing up at the market for corn, but also in the feed stock itself.

    With regards to weather, what China needs is a nice steady rain. Any continued drought I fear will have dire impact on not just energy and transportation, but also water supplies that will feed agriculture and water tables.

    R