Int'l oil price drop could ease domestic inflation

09:02, May 21, 2010      

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The international price of crude oil plunged to $70.40 a barrel Thursday from last month's high of $86.15, which could bring on oil price adjustments in China.

The falling price was mostly caused by the Greek debt crisis and the unemployment rate in the US, both of which could undermine the global economic recovery and demand for crude.

"The aviation and transportation industries will benefit from the possible oil price fall," said petrol analyst Zhong Jian. "Auto sales should be stimulated by the oil price adjustment."

A new oil pricing mechanism was introduced by the National Development and Reform Commission at the start of 2009 that allows the adjustment of retail gasoline prices when the moving average of global crude shifts more than 4 percent over a period of 22 business days.

China raised retail gasoline and diesel prices by 4-4.5 percent last month, while the price of retail oil has remained unchanged since November last year. The country adjusted domestic oil prices eight times last year, including five hikes and three cuts.

A possible drop in oil prices domestically could ease China's growing inflationary pressures.

In April, China's consumer prices rose 2.8 percent from a year earlier, the National Bureau of Statistics (NBS) said. Food prices jumped 5.9 percent, up from March's 5.2 percent growth rate.

Loans grew 51 percent from March to April, reaching 774 billion yuan ($113.4 billion), while China's money supply growth was up 21.5 percent year-on-year in April.

Two policies that could offset inflation are an increase in interest rates and an upward revaluation of the yuan.

But many economists fear that the control measures would slow down the economy domestically and decrease commodity demand in the coming months.

Exporters have pled that a revaluation of the yuan would seriously damage their businesses, while international hot money has flooded into the country on speculation over a currency hike.

"The current economic situation is still extremely complex," Li Xiaochao, a National Bureau of Statistics spokesman, said last week. "The government will maintain pro-stimulus policies but will be more flexible and targeted."

Source: Global Times


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