• Sun
  • Dec 21, 2014
  • Updated: 12:17pm

Fuel rises show Beijing can control inflation

PUBLISHED : Thursday, 23 December, 2010, 12:00am
UPDATED : Thursday, 23 December, 2010, 12:00am

The central government's surprise move to raise petrol and diesel prices, which could fuel worries of higher consumer prices, shows Beijing's confidence in keeping inflation under control, say economists.

The National Development and Reform Commission raised the price of petrol by 310 yuan (HK$361.42) per tonne, or 4.2 per cent, and the price of diesel by 300 yuan per tonne, or 4.5 per cent, yesterday. The price increases were less than half of the gain in global crude oil prices in the past month. Beijing last raised petrol prices on October 26.

The NDRC, the mainland's top economic planner and price regulator, said the decision was a result of careful consideration. The price rise would add 0.07 percentage points to the monthly consumer price index, the commission said.

The planning body last month said the government would intervene in the commodity market to rein in inflation.

Consumer prices jumped 5.1 per cent in November, prompting the government to adopt anti-inflationary measures. The NDRC said that the latest price increase was aimed at curbing oil consumption and to eventually raise energy efficiency. The agency has the final say in petrol and diesel prices on the mainland.

Crude oil imports are likely to account for 55 per cent of China's total oil consumption this year. The nation's ever-increasing reliance on imported oil has deepened Beijing's concerns over its energy security.

Economists said the fuel price increase would have minimum impact on inflation. Li Huiyong, a chief economist at Shenyin Wanguo Securities, said petrol has a small weighting in the country's consumer price index and the price increase wouldn't massively add to the index in the coming months.

'Since oil consumption only accounts for 20 per cent of China's total energy consumption and it's already close to the end of December, the impact of this price hike on the CPI should be rather small,' said Lu Ting, China economist with Bank of America Merrill Lynch.

The NDRC's price-control statement last month had sparked fears of chaos in the economy as analysts had warned the actions would backfire. Earlier this month, several companies temporarily halted production of soya bean oil, fearing losses because of Beijing's move to cap prices of finished products.

'The price hikes in petrol and diesel gave market forces full play,' said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences. 'Beijing has taken the right approach in setting product prices.'

Yi said price increases would benefit the mainland's oil giants, including PetroChina. The nation's largest oil company saw its A shares drop 0.7 per cent to 11.44 yuan yesterday. Its H shares gained 0.3 per cent to HK$9.94.

Chinese airlines will be the main victims of the price increase as the NDRC also raised jet fuel prices by 5.3 per cent yesterday.

Sinolink Securities estimated the higher jet fuel price would cost Air China an extra 600 million yuan next year.

China Southern Airlines would spend 1 billion yuan more on jet fuel while China Eastern Airlines would have to pay an additional 860 million yuan.

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