The Chinese government just increased the the price of fuel for its consumers, with gasoline prices rising by 500 yuan a metric ton, and diesel by 400 yuan. Benchmark prices are now 21% higher year-over-year, according to Societe Generale’s Wei Yao.
And this latest price increase is going to contribute to China’s inflation problem.
From Wei Yao:
This average international oil price has risen more than 17% since the last price hike on February 20th. China’s adjustments in domestic fuel prices still lag the international prices by a big margin.
Retail fuel cost and airline fuel surcharges are the two direct channels linking oil prices to the China’s consumer price index, and their weights in the CPI basket are no more than 2.5%. Hence, we estimate this price rise to add around 0.2 percentage points to the headline yoy CPI and 0.5~0.7 percentage points to the headline yoy PPI in April.
This hike should, however, support the country’s refiners like Sinopec and PetroChina, according to Yao.
[credit provider=”Societe Generale”]