Managing "inflation expectations" around the world

How long is it reasonable to expect that nearly all the world's citizens will continue to believe what their government tells them on the subject of rising prices?

After seeing this story in China Daily, it seems that shaping public opinion on the subject of inflation, or "managing inflation expectations" as they say here in the U.S., is now a global phenomenon - a universal attempt to prevent actual prices from rising too fast.

Does that really work?

Surely, a more effective means of controlling rising prices would be to just create a little less money and credit used to purchase these goods, but simple solutions like this appear to be impractical for policymakers around the globe.

There he is, Premier Wen Jiabao, chatting it up with a vegetable seller the other day, talking about how the government's economists are hard at work, determined not to let rising prices get the upper hand.

Economist: China to keep inflation in check
China's consumer price index (CPI) is expected to grow less than 4 percent for 2007 as food price increases are likely to ease in coming months, a statistics official said.

Yao Jingyuan, chief economist of the National Bureau of Statistics, said China had sufficient supplies of all food except pork, meaning overall food prices would not run out of control, Xinhua reported.

Annual consumer inflation hit a 33-month high of 4.4 percent in June as food prices rose 11.3 percent, triggering widespread concerns about inflation.

In the latest effort to ease those worries, Premier Wen Jiabao visited a meat and vegetable wholesale market in Beijing on Saturday and promised that the world's fourth-largest economy would be able to stabilize food prices.

Fan Jianping, a senior analyst at the State Information Centre, a key government think-tank, said separately that inflation was within a controllable range.

Admittedly, the task of influencing public opinion in China is much easier than it is here in the U.S. - those who are critical of what the government says tend not to be heard too loudly or too long for one reason or another .

When faced with the dichotomy of rising prices all around them and both pronouncements and statistics from state economists saying that it just isn't so, they are likely to plod along much longer than their U.S. counterparts.

Of course, there's not much they can do about the situation anyway.

With more of its citizens driving automobiles, however, the Chinese government really should try to get out in front of the key problem faced by "inflation expectation managers" in other parts of the world - gasoline prices.

Just like trade and finance, inflation is now a global phenomenon where a relatively fixed supply of energy is being chased by an ever-growing supply of money and credit spewing forth from treasuries and financial centers all around the world.

If energy prices continue to increase as they have over the last few years, the task of managing inflation expectations in China will become more difficult with each gallon of gas pumped.

Here in the U.S., millions of motorists have begun to notice rising gasoline prices and are not happy about it - $1.50 in 2003, $2.25 in 2005, $3.00 in 2007.

Even simpletons can figure out that this is a lot more than two or four percent.