China

Bloomberg carries a few more details about Beijing’s changes to the PPC:

The increase will affect the consumer price index “indirectly” by 0.05 percentage point, China Central Television reported yesterday, citing Liu Shujie, head of economic research at the NDRC. Inflation was 5.3 percent in April and has been above the government’s 2011 target of 4 percent every month this year.

So State TV calculates the power price compromises will effect the CPI, slightly.   They are also in the business of downplaying bad news, though I don’t have any data to contradict them.  Based on Reuters’ quotes from earlier this weekthat suggest the completed increases were outpaced by increases in the price of Coal, I can only imagine that we’ll see the CPI climb more, and not just based on power price increases.

The Catch 22 is obvious, right? The Central Government must control inflation to maintain consumer confidence and economic growth. Both of those roughly add up to “Social Stability”. Two of the biggest contributors to inflation are inter-related and out of their direct control: the price of Thermal Coal, and the ongoing, worsening drought. The effects of drought are obvious, and the worse it gets, the more dependent the Chinese power infrastructure becomes dependent on coal power, and thus coal prices. State Owned Power Producers won these rate concessions, but surely will demand much more.

It’s going to be an interesting summer.