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China to Rein in Ripple Effect of Energy Price Increases

China's top economic planner is to control the spread of price increases after it lifted fuel and electricity prices on Thursday, seeking to avoid fanning inflation.

Local price regulators were urged to tighten price monitoring and control the price increases of other industrial products, the National Development and Reform Commission (NDRC) said in a statement on Saturday.

Producers were encouraged to cut production costs instead of rising prices, said NDRC. It also suggested local government should reduce administrative fees paid by producers.

NDRC raised the retail prices of gasoline and diesel oil by 1,000 yuan (US$144.9) per ton, effective on Friday, with the price of aviation kerosene up by 1,500 yuan per ton.

Retail electricity price will be raised by 0.025 yuan per kwh starting from July 1. Prices directly related to people's livelihoods, however, remained unchanged, including public transport, taxis and household electricity.

NDRC required all departments concerned to firmly stick to the price adjustment policies and said those who illegally jacked up prices would be punished.

Many economists worried that the price increases might fuel inflationary pressure, which showed signs of easing last month.

The consumer price index (CPI), a main gauge of inflation, eased to 7.7 percent in May over falling food prices. The reading was 8.5 percent in April, up from 8.3 in March and down from the 12-year high of 8.7 percent in February.

Before the energy price increases, market analysts were expecting the CPI to continue decelerating in June and July.

The price rises would have limited power to stoke the inflation rate, as for one thing prices directly related to people's livelihood remain unchanged, Xu Kunlin, deputy head of NDRC pricing department had said.

Cost increases for producers after the rise, however, would probably not go beyond the production sector, because of the over-supply situation of consumer products, he added.

(Xinhua News Agency June 22, 2008)

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