China might have the muscle but where are the brains?

I wrote about inflation in china before and how it might affect their economic growth, in fact it may prove to be their economic Achilles heel.

now the BBC have reported that the Chinese Government has come up with a novel way of curbing inflation (get a reporter from the Economist & FT over there quick!). They will fine retailers if they raise their prices… What ingenuity! Why didn’t somebody think of this before? I wonder if they will also fine them for not having any stock after they become unable to purchase anything because they will not be able to make any mark up on it?

Here’s the scenario:Mr. Chang buys pork for €5 and would normally sell for 6 or 7, but now pork costs 6 or 7, he can’t mark this up, so Mr. Chang stops selling pork, that doesn’t mean demand disappears, it means demand will actually rise due to scarcity and will result in demand pull inflation. The Chinese Government probably didn’t think of that aspect …

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