China’s decision to raise fuel prices is unlikely to have much of an impact on demand, which is the fundamental cause of inflation, Morgan Stanley said in a note.
‘It seems to us that the government is trying to cope with the near-term financial difficulties of refiners and IPPs (independent power producers) rather than trying to depress demand,’ the note said.
The regulator, the National Development and Reform Commission, said last night that it would raise gasoline and diesel prices by 1,000 yuan per ton and jet fuel by 1,500 yuan per ton, effective from today.
The government has also raised electricity tariffs for industrial consumers and announced caps on cap coal prices.
Morgan Stanley (nyse: MS - news - people ) said the price hikes will also add more inflationary pressure to China’s economy, making it less likely that the government will permit more significant power tariff rises in the next few months.
It said that while there will be a temporary improvement in the performance of China’s refiners and independent power producers, the ‘underlying imbalance is not fixed’ and more inflationary pressures are expected.
‘Inflation can only be fixed by controlling demand, not prices,’ Morgan Stanley said.
‘When the regulators focus on pricing control, the imbalance only deepens and earnings visibility becomes worse. Our market de-rating call still holds.’
This is just what I was talking about beetlbumjl. They can’t continue to have artificially low prices without consequences. Of course this retard from Morgan Stanley needs to head back to economics class. Inflation can be controlled by the government… by not printing more money i.e. monetizing debt. What he is really referring to is the increase in prices as a result of higher demand. That’s not “inflation.”
If we look back just a few years we can see that there has been a remarkable shift in the definition. I don’t know of any word which has gone through such a translation without having prior or secondary meanings still listed. My conspiracist sense is tingling.
Regardless, the Chinese government has kicked a bucket of water and is now trying desperately to stop the waves by shaking it. If they allow the natural price of fuel to return that would slow consumption. The demand for energy is likely not going to be reduced but naturally higher prices will incentivize entrepreneurs to find new, cheaper energy sources when compared to oil.
Update:
Just on CNN they were talking about this. The mentioned that Saudi Arabia was wanting to talk about strengthening the dollar and the anchor said that “that would likely bring prices down.” Well of course it would. Oil is traded in US dollars. The US dollar is the reserve currency for much of the world. So if the dollar is worth less, in turn leading to other currencies being worth less, then oil will cost more. If the dollar is worth more then less dollars are needed to purchase the same unit of oil. Therefore prices must drop otherwise the value of oil would have to be rising at the same time. The same anchor said that increasing the prices would limit demand. That’s sort of true in that the higher costs may divert people to other means however in the larger view it’s a ridiculous statement. The demand, as in the desire for a energy source, is still the same or increasing. It’s just less consumable because of higher costs.
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