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Mon, Nov 08, 2004 - Page 12 News List

Energy may become China's biggest inflation driver

BLOOMBERG AND AFP , BEIJING

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 as recently as Saturday it's concerned inflation may pick up. Inflation is expected to average 4 percent this year and next, from 1.2 percent last year, said Wu Baosen, deputy director of the National Development and Reform Commission's price monitoring center in Beijing.

"About 90 percent 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 staples are climbing because of a domestic grain shortage.

Crude oil prices in New York have surged 53 percent this year and reached a record US$55.67 a barrel on Oct. 25. Grain prices in China rose 32 percent from a year earlier in September, meat costs surged 22 percent and eggs were 27 percent 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.

Shortfall

The grain shortfall in China, the world's biggest food consumer, may decline by as much as 60 percent next year as tax cuts and other incentives encourage farmers to plant more crops, the State Information Center said yesterday.

China's crude oil output will peak at 200 million tonnes annually in a decade, but even that will be far from enough to cover the country's voracious energy needs, state media said yesterday.

The prediction for crude oil production in 2015 has been made by the State Information Center based on present oil extracting technology, the Xinhua news agency reported.

China's output of crude oil reached 170 million tonnes last year, up from just 120,000 tonnes 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.

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