For all its pains, energy price hike a wise move

Last Thursday, the National Development and Reform Commission (NDRC), the country's economic watchdog, announced the rise in prices for gasoline and diesel by 1,000 yuan ($144.9) per ton and the price for aviation kerosene by 1,500 yuan ($217.4) per ton from June 20. And from July 1, the price of electricity will also be raised by 0.025 yuan per kilowatt.

The unexpected energy price rise by the NDRC has significant influences on all market players. More importantly, its effects on the economy in the short term differ dramatically with those in the long run. Therefore, a detailed analysis is worthwhile at this moment.

Energy price is closely related to prices of nearly all commodities, hence key to the economic soundness. An energy price rise is sure to drive up the Consumer Price Index (CPI) growth instantly and would likely strengthen the inflation expectation.