Inflation sighted – Consumers change lifestyles to battle price hike

December 6th, 2010 at 5:37 am by Chaz

Blog, Business

By Huang Daohen

As economists continue to battle over the question of inflation, McDonald’s provided a more definitive answer: the company announced last week that the price of a Big Mac in its 1,000 China outlets has risen from 14 to 15 yuan ($2.25).

Food and daily necessities are becoming more costly across the nation, forcing more economic consumers to change their lifestyles and shopping habits to cope with the price hike.

Locals get creative to save

Li Lin, a local 29-year-old IT engineer, has been spending almost as much time in a nearby Carrefour supermarket as he does at his desk, writing programs.

“I heard the price of food is going up, so I started going to the big supermarkets so I could buy and hoard food for myself and my parents,” Li said while waiting in the checkout line of Carrefour’s Yaojiayuan outlet last Sunday.

Li said the price hikes have forced him to become a smarter shopper. “I think carefully and make price comparisons before deciding to purchase anything,” he said.

His hoarding turned out to be a smart move. This week, the price of cooking oil rose about 0.3 percent.

Cooking oil aside, the prices of 24 common food items out of 31 are going up. According to the National Bureau of Statistics, the country’s consumer price index (CPI) soared to a 25-month high of 4.4 percent year on year last month.

The prices of cooking oil, sugar and cotton are leading the hike. Cooking oil jumped 10 to 20 percent over the past month.

The bureau said the CPI is expected to rise another 3.8 percent in the fourth quarter.

But stocking up is hardly enough to combat the price jump. Younger consumers are pooling their money to buy in bulk for bigger discounts.

Huang Dan, 22, a secretary for a US law firm, is one of many group purchase advocates.

She said a cake that normally costs 179 yuan can be purchased for 60 yuan when bought in bulk. “If I buy enough at once, I can have a bigger discount and save more money,” she said.

The country now has more than 1,200 websites to organize such group purchases, according to the Ministry of Commerce. It granted credit certifications to 29 group-buying sites last month as an attempt to protect consumers.

Huang said she is also keeping track of her daily and weekly expenditures.

More dramatically, consumers in Shenzhen have been flooding Hong Kong to shop, this time bringing back bags of food instead of luxury cosmetics.

Xiao Wen, a Shenzhen local, told Xinhua that she and her friends went to Hong Kong once a month to buy daily commodities like cooking oil in bulk.

“Prices in Shenzhen rise fast and a lot of stuff is cheaper in Hong Kong,” Xiao was quoted by Xinhua as saying.

Ironically, only a few years ago it was Hong Kong residents who would come to Shenzhen to spend weekends shopping and dining, Xiao said.

Transformation of lifestyle

Some consumers have altered their lifestyles to cope with the price hikes. The biggest change has been in transportation.

According to the city’s traffic authority, the number of riders choosing mass transit is exploding.

The capital began offering a 60 percent pric e discount to bus riders using electronic traffic cards.

The rising fuel price has sent many former private car drivers to the buses and subways, said Wang Wei, an officer with the Beijing Traffic Management Bureau.
Many more are bicycling to work. Wang, despite owning a Ford car, said he walks or cycles to work when he is not in a hurry. “It is environmentally friendly and besides, it’s healthier,” he said.

Analyst insight: Let money out to curb inflation

To conquer the current price hikes, the government raised bank reserve requirements twice in the last two weeks. But experts are worried that it is too late for such measures to be effective.

People’s Daily on Monday called for a relaxing of currency accounts and an increase in offshore investment by Chinese companies.

Zhao Xiao, an economist at the University of Science and Technology Beijing, agreed. Zhao said letting domestic money flow out would be a better way to battle the price hike.

The current price hikes are due to excess liquidity on the market, which is caused by the loose global monetary environment, Zhao said. The country’s M2 (broad money supply) has doubled to $10 trillion since 2008.

The inflow of hot money also played a role during the price hike, Zhao said. Foreign capital to China has been expecting the yuan to appreciate.

Statistics from the Commerce Ministry show that the country’s foreign direct investment (FDI) soared 48 percent during the first 10 months this year.

While there is apparently too much liquidity, the question is how to let excess money out, Zhao said.

Zhao suggested that the government release restrictions on foreign exchange under current accounts. “We have to let more private companies tap the international market,” he said. “More money outflow can actually hedge against the hot money inflow.”

Private investors poured about $67 billion into overseas equities, but Zhao said that is nothing when compared to the country’s $2 trillion net overseas assets.

If the private sector fails, state-owned enterprises and the government will have to take the lead, Zhao said. The government can issue debt and use the money to invest off-shore.

Zhao also said the government should establish a more flexible, market-oriented yuan exchange rate.

Source:Beijing Today