China tames oil price spike to protect economy from inflation

China has limited a sharp rise in domestic fuel prices as governments across the region move to shield consumers and businesses from energy-driven inflation stemming from the conflict in the Middle East.

Under the country’s biweekly pricing mechanism, gasoline and diesel prices were projected to rise by 800 yuan and 770 yuan per ton, respectively. Instead, authorities announced that prices will increase by 420 yuan and 400 yuan per ton. The adjustments take effect at midnight, Caliber.Az reports, citing foreign media.

“Since the last adjustment on March 23, international crude prices have fluctuated significantly, and the government will continue to implement control measures to shield the domestic market from the impact,” the National Development and Reform Commission said in a statement.

The move comes as markets anticipate China’s first full inflation report since the conflict began in late February. A Wall Street Journal poll predicts that the release will show consumer price growth remained at 1.3% year-on-year in March, while producer prices finally returned to positive territory after more than three years of contraction.

After a long period of deflationary pressure, a bump in price growth could seem welcome on paper, but if demand remains weak, supply-side inflation will become a headwind.

China is better positioned than most of Asia to absorb the price shock, thanks to sizable strategic oil reserves and the ability to rely on coal or renewable energy. Meanwhile, other Asian governments have introduced measures such as price caps and subsidies to protect consumers and businesses from rising energy costs.

The longer the conflict lasts, the more difficult it will be to keep those buffers in place, raising the risk of slower growth and higher inflation across the region.

By Vafa Guliyeva