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People's Daily Online>>Opinion

Sharp rise in oil prices unlikely

By Zhu Jianhong (People's Daily)

15:29, March 26, 2012

Edited and Translated by People's Daily Online

Prices of bulk commodities such as oil will fluctuate at high levels in 2012, and are unlikely to continue to rise sharply, said Yu Bin, director of the Department of Macro-economic Research at the State Council's Development Research Center.

Overall, China will be able to meet its inflation target of 4 percent this year.

Yu said that with rapid economic development, China's dependence on foreign oil producers has greatly increased, reaching 56 percent last year.

International oil prices have a direct impact on China's domestic price levels. Due to the U.S. and European debt crises, economic growth has slowed down significantly in most countries, including China. The crisis has also led to slower growth in the demand for bulk commodities which eliminates the possibility of a continuous sharp rise of commodity prices.

In addition, there is also some uncertainty about the supply of bulk commodities. For example, the turmoil in North Africa and the Middle East last year affected the supply of bulk commodities such as oil. This year, prices of bulk commodities will fluctuate at elevated levels and are unlikely to continue to rise sharply

Yu noted that rising oil prices result in an increase in the Producer Price Index (PPI), and the increased PPI is then changed into a higher inflation rate.

"Statistics show that international oil prices have a considerable impact on domestic price levels. We should attach great importance to meeting this year's inflation control target, which will be a demanding task," Yu said.

Yu believes that the Chinese economy encounters rising costs and faces long-term inflationary pressure. Under such a context, the country should have higher tolerance for inflation, actively push forward the price reform, straighten out price relations, bring into full play the role of market mechanisms and create good conditions for structural adjustments.

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