McDonald’s announced it has raised its prices in all 1,000 of its Chinese restaurants due to the high food inflation. The price hike only pertains to mainland China and does not affect any of its other Asian franchise restaurants.
The Chinese Consumer Price Index rose 4.4% in October, the highest monthly rise in more than two years.
The rise in CPI is primarily due to the high cost of raw food commodities and may spurn China to place a cap on commodity prices.
Wen Jiabao, Chinese Premier, said that his cabinet is drafting legislation to curb the excessive price increases.
China may also impose limits and tougher penalties on agricultural futures speculators that drive up the prices of raw materials artificially.
The plans have drawn criticism in China as well as abroad. Some economists have called the measures unnecessary and point out that China has sufficient tools to control rising food prices without having to resort to the drastic measures of capping futures and food prices.
China is expected to raise its benchmark rate this coming Friday by another 25 Bp to battle inflation.
The Consumer Confidence Index in China shows that 76% of the Chinese expect prices to rise over the next year, according to the Chinese statistics bureau.
India’s fast growing economy is not immune to the rise in food prices either. Dairy products alone rose by 21% in 2010 while other non-dairy food prices saw a jump of 14% year-over-year.
While Ben Bernanke may point out that inflationary pressure in the US remains below expectations that may not be the case for much longer. US food producers have hinted on several occasions that a rise in food prices should be expected to pass on the higher production costs to the consumer in order to keep their profit margins healthy.
Inflation seems to rise across the global economy and one local or continental economy cannot consider itself to be immune.
The inflationary wave will move from the East to the West at a rapid pace and unless our monetary policies are adequate we should brace ourselves for the realistic possibility that a Chinese or Indian ripple will become a tsunami when the effect reaches the US.
The US however faces a more crippling effect to battle the food war and that is high unemployment and low spendable income.
One can always opt to eat at McDonald’s in Beijing where a Big Mac meal will only set you back $2.20 versus one in the US where the average price stands at $3.70.
Written by Nick Doms © 2010, all rights reserved
No comments:
Post a Comment