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Rising fuel prices drive worries over living costs, inflation

Updated: 2012-03-21 13:17


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BEIJING - China's most recent fuel price hike has triggered a fresh wave of inflation concerns among a cost-sensitive public that has seen soaring prices nip away at their incomes and drive up living costs.

To reflect price changes on the international crude oil market, China's top economic planner, the National Development and Reform Commission (NDRC), announced Monday evening that it would increase gasoline and diesel prices by 600 yuan ($95) per ton from Tuesday.

The news immediately became the focus of heated discussion on Sina Weibo, China's most popular Twitter-like microblogging service, as netizens gathered to assess the hike's impact on living costs.

"Oil prices rise again. Now I can afford to buy a car, but can't afford to drive one," read a Weibo post by "Ma JieMagic."

Many others voiced frustrations over wage increases not keeping pace with rising prices.

"How I hope our wage growth will keep pace with the oil price rises," read a response posted by "Xiaoyun."

The topic garnered nearly 28 million posts on Weibo by Tuesday afternoon, underscoring growing fears that the rise will kick off a new round of inflation.

These worries came as the price of scallion, a common food on China's dinner tables, has surged more than 50 percent year-on-year, despite the fact that inflation in the country has just started to ease.

Prices of some other vegetables, including cabbage, celery and tomato, also climbed to levels near or above the prices seen during the Spring Festival holiday period.

Government data showed that China's consumer price index (CPI), a main gauge of inflation, rose 3.2 percent year-on-year in February, marking the lowest rate of growth in 20 months.

The Chinese government aims to keep the CPI increase to around 4 percent for 2012. The index climbed 5.4 percent last year.

While the public is expressing concerns over the rippling effects of price rises, experts expect limited impacts on the CPI, as oil only accounts for around 0.5 percent of the basket of goods used to calculate China's CPI.

Data from Goldman Sachs showed that the hike is expected to add about 0.37 percent to the CPI's rise this month.

Zhuang Jian, a senior economist with Asian Development Bank, said communications and logistics sectors will be directly affected by the rise in oil prices, which will, in turn, influence the prices of agricultural products.

But he said impacts on overall prices are difficult to measure.

Heavily reliant on imports, China adopted an oil pricing mechanism in 2009 that allows the NDRC to adjust retail fuel prices when international crude oil prices change by more than 4 percent over 22 working days.

Oil prices have since been largely determined by international trends, bringing major uncertainties to the government's price-control efforts.

To mitigate the impacts, the NDRC said the government will provide subsidies for people working in the fishery, forestry and public transport sectors, which are most likely to be affected by price hikes.

In a bid to maintain prices, the government has also ordered railway and urban public transportation administrators not to hike prices.

The range of subsidy programs prepared in advance reflects the government's cautious steps for dealing with price hikes as huge uncertainties continue to loom over the country's price control target.

"Uncertainties both at home and abroad, including volatile commodity prices, weather conditions and rising labor and material costs, will make it difficult for China to keep the growth of inflation within 4 percent this year," said Zhuang.

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