Higher Chinese Energy Prices Drive Inflation

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The Chinese government has increased regulated electricity prices for large consumers to counter the power outages in the country. The higher price should make it more profitable for electricity producers to increase the supply.

 

In addition, users are encouraged to use less energy. The move by the Chinese authorities will increase inflationary pressures, and thus prices will rise.

Beijing allowed electricity prices to rise 20 percent from the previous ceiling last week. Economist Lu Ting of investment bank Nomura in Hong Kong estimates that the measure’s impact on consumer prices could be about 0.4 percentage points. Power shortages threaten to slow economic growth as factories cannot run at full capacity.

The price of coal has risen to a record high. This is partly due to heavy rainfall and flooding in the region of China, where the most coal is produced. For example, in Shanxi province, nearly 10 percent of mines have been closed due to flooding.

China also announced last week that it would significantly increase coal imports, “regardless of price, to guarantee heating and power production in the winter”. Fuel for power stations is one of the most polluting, but now that gas prices have risen to record highs, coal is once again more attractive from a business perspective.

The fact that China is planning to burn significantly more coal again makes the upcoming UN climate negotiations in Glasgow more complicated.

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