BIZCHINA> Review & Analysis
Oil price increases unlikely to cause inflation
By Wang Ying (China Daily)
Updated: 2006-05-31 08:54

The recent increase in the price of oil products in China by at least 10 per cent is unlikely to lead to inflation, analysts say.

"I am not worried about inflation - the Chinese economy is developing steadily," said Zhou Fengqi, an energy expert who previously worked at the National Development and Reform Commission (NDRC).

The NDRC, China's top economic planning body, last week increased the price of gasoline by 10.6 per cent, diesel by 12.3 per cent and jet fuel by 10.3 per cent.
The wholesale price of gasoline and diesel were separately raised by 500 yuan (US$62.5) per ton.

This is the biggest increase for gasoline since 2003 and aims to close the gap between domestic and international prices.

Niu Li, an economist with the State Information Centre, said the price adjustment would have a very small impact on a country's CPI (consumer price index).

"Some sectors, such as transportation, are hurt most by oil price increases, but some others, like oil refining, are beneficiaries," Niu said.

"So there is balance of losses and gains across industries."

China's economy expanded by an annual average of 10 per cent over the past three years and rose as much as 10.3 per cent in the first quarter as investment in factories, real estate and other fixed-assets accelerated.

Oil majors in China have said higher oil prices may help cut losses in their refining and retail businesses.

Industry analysts predicted the country's oil refining business will become a "better prospect" this year.

The central government limits the retail price of oil products, such as gasoline and diesel, a pricing system that has caused the country's oil refiners to struggle in the red as global crude prices rise.

Since January 2003, China's benchmark prices for gasoline and diesel have risen by 56 per and 50 per cent respectively, but crude prices have doubled in that period, said Gordon Kwan, director of oil and gas research at the Hong Kong-based brokerage CLSA.


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