Development and Reform Commission Experts Say Oil Price Increase Shows Acceleration of Energy Prices and International Integration
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He also told Reuters that the consumer price index (CPI) growth rate could drop to a more acceptable level in the second half of the year.
Under the pressure of international oil prices approaching US$140, the Chinese government announced on Thursday that gasoline and diesel prices have risen by 17% to 18%, while the sales price has been raised by nearly 5%. Prior to this, it was widely expected that the Chinese government would put the price adjustment after the Olympic Games in order to maintain social stability.
"When and how much, this is just a technical issue, but the trend is certainly there," Chen Dongqi said.
"Inflation will ease in the second half of the year. I think the annual increase in CPI may be around 7%," he added.
China has long stated that it will increase its energy prices and integrate it with the international market to ease its dependence on imported crude oil, while also worrying about the development of an energy-saving economy. However, the goal of maintaining social stability is also very important. The government has therefore spent huge sums to subsidize the losses caused by low oil prices.
However, Chen Dongqi's speech shows that at least some government officials have favored the latter in their choice to maintain social stability and speed up price liberalization.
Chen Dongqi said that because of the excessively low energy prices controlled by the government, price distortions have occurred, and the harm of this phenomenon is greater than inflationary pressures caused by rising prices.
“The inflation rate is really high now, but the distorted price is certainly not good and it is difficult to sustain,†he said.
The decision on Thursday eased price distortions, but it cannot be completely eliminated. Gasoline prices in China are still a quarter of the price of the United States, and only one-third of the United Kingdom.
China's average CPI rose by 8.1% in the first five months. Chen Dongqi said that if the annual inflation rate is close to 7%, although not ideal, it is also acceptable.
He also stated that 2005-2006 is the best time to reform energy prices, when global crude oil prices and domestic inflation rates were low. However, China has missed this opportunity.