TOKYO/WASHINGTON/BEIJING -- A surge in commodity prices has worried both China and the U.S., pushing each side to intensify efforts to combat the trend.
For the first time ever, the Chinese government will release part of the country's strategic oil reserves into the market, conducting a bid for 7.38 million barrels of petroleum on Sept. 24.
This sale is aimed at "relieving the pressure of rising raw material prices," the National Food and Strategic Reserves Administration said in a notice Sept. 9. The agency has released three batches of nonferrous metals since July.
China's unusual market intervention responds to signs that the economy is slowing under the weight of rallying commodity prices.
And as higher food prices in the U.S. hit the pocketbooks of everyday Americans, President Joe Biden and his administration have scrutinized the role of four dominant meat processors.
The Refinitiv/CoreCommodity CRB index, which reflects price movements among all individual commodities, touched a six-year-plus high on Wednesday. The same day in New York, futures for West Texas Intermediate crude oil closed at $72.61 a barrel, up 90% from a year earlier. Aluminum is hovering at 13-year highs.
These pressures have rippled out to China. The country's August producer price index jumped 9.5% from a year earlier, putting factory gate inflation at a 13-year high as well. Midsize to microbusinesses likely will feel the brunt of this change as they lack strong bargaining power.
In the U.S., Brian Deese, director of the National Economic Council, lashed out at the country's top four meat processors this month for their role in driving up prices of beef, pork and chicken while raking in record profits.
"When you see that level of consolidation and the increase in prices, it raises a concern about pandemic profiteering," Deese said.
A Brooklyn supermarket: The U.S. Agriculture and Justice departments have begun an investigation of major meat processors on suspicion of illegal price fixing. © Reuters American food prices have surged throughout this year. Beef prices in August were 15% higher than they were in December. Meat is responsible for half the gains in household food prices.
The Biden administration is taking a hard look at meat processors, which sit in the middle of the supply chain connecting farmers with consumers. Officials suspect the top four companies are leveraging their dominant market share to raise prices.
The Agriculture and Justice departments have begun an investigation on suspicion of illegal price fixing. Multiple chicken processing companies and their executives have been indicted.
The administration is also on edge over rising gasoline prices. The White House in mid-August instructed the Federal Trade Commission to investigate possible illegal price hikes. The U.S. has called on OPEC and OPEC+ nations to increase production of crude.
FTC Chair Lina Khan said in a letter in late August that she will take additional steps to discourage unlawful mergers of retail gas stations and tighten the panel's review process.
"I am concerned that the commission's approach to merger review in recent years has enabled significant consolidation, particularly when it comes to retail fuel outlets," Khan wrote. Biden says he wants nothing to stand in the way of lower gas prices.
"The market-oriented U.S. and China face a turning point in their governing philosophies, underpinning their intensifying positions," said Kazuo Momma, executive economist at Mizuho Research & Technologies.
Neoliberalism, which favors market-oriented solutions to policy questions, faces mounting skepticism in the U.S. amid widening wealth inequality. The Business Roundtable lobbyist group in 2019 dropped its shareholder-first principle in favor of a stance that takes employees, communities and other stakeholders into higher consideration.
In China, the government has embarked on a "common prosperity" campaign targeting the tech industry and the affluent. For both Beijing and Washington, helping consumers and small businesses has taken on greater political implications.
But it remains unclear how effective their efforts will be. The price gains are strongly influenced by the pandemic-hit supply chains and labor shortages. Though China is taking the direct approach by opening its strategic reserves, Beijing will be hard-pressed to release volumes that would satisfy the underlying demand from the world's second-largest economy.
"It's hard to anticipate a direct impact that would ease the cost burdens on small to midsize enterprises," according to an official of a trading company in Tianjin.
Aluminum prices also remain elevated, as a coup in Guinea has added uncertainty to the world's largest producer of bauxite, from which the material is commonly refined.
In the U.S., some critics say the White House push for meat processors, OPEC+ and other suppliers to curb prices conflicts with Biden's extensive fiscal and monetary stimulus programs. The latter aims to fuel demand, which would contribute to price gains.
The macroeconomic stimulus "will set off inflationary pressures of a kind we have not seen in a generation," former Treasury Secretary Larry Summers warned in a February column. Inflation remains the key watchword, with its implications on actions taken by the U.S. Federal Reserve and other central banks.