According to today’s newspapers six independent fuel stations on the mainland that have been illegally selling fuel at prices above the subsidized levels mandated by the government have been fined.I don’t know how prevalent this is but I am pretty certain that even if it is very widespread these higher fuel prices will not show up in the official CPI numbers. Nonetheless Shanghai Securities News says that according to a research report by Guohai Securities, CPI inflation for November is likely to be between 6.6% and 6.8%, which would be above its 11-year high of 6.5% in October.
I have already said in earlier entries why I think that official CPI is understating the real price increases for ordinary Chinese families.First off, food prices have risen by 17-18% year to date, but food’s share of the CPI basket seems to have remained constant in the CPI calculations at roughly 33% of the basket.Chinese families must be spending more on food now than they were at the beginning of the year, and if we adjust the food component up by just 10%, to 36% of the basket, that would have added 0.5% to last month’s CPI number.Of course such a simply adjustment doesn’t correct for the bias, but it does suggest that inflation during 2007, especially since the big food price increases during and after summer, has been worse than what the CPI figures record, and with that real interest rates have been lower.
Second, inflation has had a much bigger impact on students and the urban working class than the numbers suggest.They tend to spend more on food than the average family does.That has a political dimension which lies outside the scope of my blog, but it does suggest why inflation is seen as such an urgent problem.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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January, 2008
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