Bad News from Beijing

Apparently, inflation in China has become such a concern that the government is ready to take drastic measures:

Prime Minister Wen Jiabao responded Wednesday to growing public anxiety about inflation by announcing that China would freeze energy prices in the near term, even as international crude oil futures have continued to surge.

The new effort to fight rising prices comes with inflation hitting an 11-year high in China. A recent nationwide public opinion survey found that “rising prices of consumer goods” ranked as the top public concern, followed by income inequality and corruption.

The latest freezes, announced on the government’s main Web site, came after Mr. Wen presided over a Wednesday meeting of the State Council to revise policies on price controls.

Prices of oil products, natural gas and electricity will be frozen in the near term. Rates for public water bills will also be frozen, as will the price of public transportation tickets.

The edict also called for stabilizing prices on medical services and for certain agricultural fertilizers. It ordered local governments to monitor prices closely and warned that punishments would be strengthened for those who violate government price-control policies.

To some extent, inflation is a by-product of an economy that is growing too big, too fast. But the fact that the government is resorting to price controls is a bad sign. Either the Chinese government can't control its monetary base, or else it is pursuing a bad policy out of desperation. The Chinese may believe that price controls are a lesser evil than intentionally slowing the rate of economic growth while so many of its citizens still live in abject poverty. But price controls are unsustainable even in the medium-run. At some point something will have to give: either inflation will return, or the economy must slow.