Energy costs may replace food prices next year as the biggest contributor to China's inflation, a government official said, increasing the risk of higher interest rates in the world's fastest-growing major economy.
The central bank, which last month raised its key lending rate for the time in nine years, said as recently as Saturday it's concerned inflation may pick up. Inflation is expected to average 4 percent this year and next, from 1.2 percent last year, said Wu Baosen, deputy director of the National Development and Reform Com-mission's price monitoring center in Beijing.
"About 90 percent of inflation this year has come from the pressure of higher commodity and food prices," Wu told the 2005 China Industry Development Seminar.
"Although food prices will increase next year, energy will account for the bulk of inflationary pressure."
The People's Bank of China raised the benchmark interest rate for the first time in nine years on October 28.
The central bank increased the one-year lending and deposit rates by 0.27 percentage point to 5.58 percent and 2.25 percent respectively.
The government is trying to cool expansion in industries including auto, steel and cement it says are expanding too rapidly, clogging transport links and straining supplies of electricity and raw materials.
Government officials said annual economy growth of 7 percent to 8 percent for the next two decades is desirable.
Record prices for crude oil and rail and port bottlenecks that have restricted coal supplies are boosting electricity and gasoline costs, he said.
Prices of rice, bread and other food staples are climbing because of a domestic grain shortage.
Crude oil prices in New York have surged 53 percent this year and reached a record US$55.67 a barrel on October 25.
Grain prices in China rose 32 percent from a year earlier in September, meat costs surged 22 percent and eggs were 27 percent more expensive, official figures show.
Rising energy costs may prompt China's local governments to increase prices for power and gas in cities next year, Wu said. "Energy demand is rising faster than supply," he said.