General | Feb 03 2006
The Chinese government has moved to allow domestic fuel prices to trade closer to actual market prices, UBS noting this will allow it to end attempts to restrict demand and free it to use subsidies to give assistance where necessary.
As the broker notes, to date the government has followed a policy of attempting to restrict demand for fuel to amounts covered by domestic supply and cheaper contracts, but the new policy moves it closer to a more open market.
According to a report by The People’s Bank of China, this policy is likely to put upward pressure on inflation over the course of the year, with it estimating higher refined oil product prices will add 0.17% to the Consumer Price Index (CPI) and 0.28% to the Producer Price Index (PPI).
At the same time, it forecasts higher natural gas prices will add 0.05% and 0.02% respectively to the indices.
Overall, the bank expects inflation in China will increase by 2% in 2006, with the rate accelerating as the year goes by. The bank is also forecasting economic growth will slow slightly, from 9.2% in the March quarter to 8.7% in the December quarter.
