Huge rises in commodity prices are exerting mounting pressure on inflation, a senior economic official has warned amid concerns that rising global oil prices may soon push production costs higher.
Zhu Hongren, a deputy department director at the National Development and Reform Commission (NDRC), said high oil prices have already put pressure on production materials, which in turn may cause prices of industrial products and commodities to rise.
This is the first warning this year by government officials that there is a serious risk of a rise in the consumer price index (CPI), a key gauge of inflation.
Earlier, officials had maintained that inflation - which stood at 6.2 percent for September after hitting an 11-year high of 6.5 percent in August - was structural, and that the government is keeping a close eye on developments. The rising CPI figure was mainly attributed to high food prices.
"This means inflation could turn from a structural to an overall high," Zhu, who is in charge of economic operations, told China Daily. "That is my concern."
Light crude for December delivery rose to a record $95.93 a barrel on the New York Mercantile Exchange after rising as high as $96.05 earlier. And on Thursday, a trading record of $96.24 was set.
The NDRC has vowed that the country will ensure energy supplies to power its fast growing economy after it raised the prices of gasoline, diesel oil and aviation kerosene by 500 yuan ($66) per ton last week, a rise of around 8 percent. The average retail price of gasoline now stands at 5,980 yuan ($800) per ton, and diesel is 5,520 yuan ($740) per ton.
Zhu said the government will implement further tightening macro-control policies to address inflation, curb excessive liquidity, and restrain commercial bank loans.
However, several economists have said energy prices were not the only reason for the inflation. They have repeatedly warned that the country has entered into "a cycle of high prices," saying high investment costs, growing wages, increasing consumption demand and price hikes in the international market have fueled inflation fears.
During the 17th CPC National Congress last month, leading agricultural policy decision maker Chen Xiwen forecast that grain prices will continue to edge upwards next year despite a turbulent 12 months in which costs soared.
He said the surging costs of oil, production material and fertilizer will make it increasingly difficult for the government to curb hikes generated by rising food prices since last year.
"Preventing overall inflation and economic overheating should be treated as our top priorities," said Zhu Hongren.
(China Daily November 5, 2007)