Energy may become China's biggest inflation driver

Nov 08, 2004 01:00 AM

Energy costs may replace food prices next year as the biggest contributor to China's inflation, a government official said, increasing the risk of higher interest rates in the world's fastest-growing major economy.
The central bank, which last month raised its key lending rate for the time in nine years, said it's concerned inflation may pick up.

Inflation is expected to average 4 % this year and next, from 1.2 % last year, said Wu Baosen, deputy director of the National Development and Reform Commission's price monitoring centre in Beijing.
"About 90 % of inflation this year has come from the pressure of higher commodity and food prices," Wu told the 2005 China Industry Development Seminar. "Although food prices will increase next year, energy will account for the bulk of inflationary pressure."

Record prices for crude oil and rail and port bottlenecks that have restricted coal supplies are boosting electricity and gasoline costs, he said. Prices of rice, bread and other food staplesare climbing because of a domestic grain shortage.
Crude oil prices in New York have surged 53 % this year and reached a record $ 55.67 a barrel on Oct. 25. Grain prices in China rose 32 % from a year earlier in September, meat costs surged 22 % and eggs were 27 % more expensive, official figures show.

Rising energy costs may prompt China's local governments to increase prices for power and gas in cities next year, Wu said. "Energy demand is rising faster than supply," he said.
The grain shortfall in China, the world's biggest food consumer, may decline by as much as 60 % next year as tax cuts and other incentives encourage farmers to plant more crops, the State Information Centre said. China's crude oil output will peak at 200 mm tpy in a decade, but even that will be far from enough to cover the country's voracious energy needs.

The prediction for crude oil production in 2015 has been made by the State Information Centre based on present oil extracting technology.
China's output of crude oil reached 170 mm tons last year, up from just 120,000 tons at the start of the communist era in 1949, according to previous reports. The problem is that even though domestic output will continue to grow, it will be in no position to meet demand.

Source: Taipei Times
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