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Rising cost of raw materials threatens to push inflation levels up in China

"It's one of the problems China faces besides the spree of fixed assets investment."

Zhu Hongren, National Development and Reform Commission official

China is bracing for higher inflation due to the rising cost of oil and other raw materials, with authorities also phasing in price hikes for electricity and water, state press said yesterday.

"The price rises of raw materials have increased costs for producers and will eventually push up prices of finished products," the China Daily quoted Zhu Hongren (朱宏仁), a top official at the National Development and Reform Commission, as saying. "It's one of the problems China faces besides the spree of fixed assets investment."

Crude oil prices are 40 percent higher than July last year and copper more than double a year ago, Zhu pointed out.

China's consumer price index rose 1.4 percent in the second quarter of the year compared with the same period last year, official data released on Tuesday last week showed.

The index -- the main gauge of inflation and a key factor in determining the temperature of the economy -- was up 1.5 percent in June alone, the National Bureau of Statistics said.

The consumer price index for the first six months rose 1.3 percent, when the economy grew by 10.9 percent, according to the bureau.

These rates are low by most standards and some analysts have said they could reflect the pressure of oversupply and overcapacity in the Chinese economy.

However, inflation has been picking up slowly and the rise in prices for oil and many commodities has been so sharp and sustained that many believe it will inevitably lead to sharper price increases to come.

Energy and water prices were set to rise throughout the country due to the general problem of resource shortages, aside from the immediate concern of higher prices, the China Daily said in a separate editorial.

"Increased power and energy prices are inevitable as the Chinese economy increasingly tests its resource and environmental limits," the editorial said.

Many areas across the country have already introduced some price hikes as a way to encourage water conservation and ease water shortages, according to various state press reports this week.

All across China water prices have risen between 15 to 23 percent recently, the reports said.
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