Morgan Stanley said it expects China's CPI, a gauge of inflation, to drop from 6.3 percent in July to 5.5 percent in August, paving the way for another round of energy price hikes in the coming months.
"With the successful conclusion of the 2008 Beijing Olympic Games, Chinese policymakers will focus once again on macroeconomic management, so energy price normalization is likely to feature prominently in the post-Olympic policy package," said Morgan Stanley analyst Wang Qing.
The government raised gasoline and diesel prices by 17-18 percent in June, while electricity charges for commercial units went up by 0.025 yuan per kWh from July 1.
Chinese oil refiners have suffered massive losses due to the gap between international crude oil prices and the prices of refined petroleum products, which remain controlled by the government.
Morgan Stanley suggested if the prices of refined products, electricity and coal were raised by 10 percent, it would cause the producer price index to increase by 0.88 percent, 0.44 percent and 0.23 percent respectively, while the CPI would increase by 0.35 percent, 0.52 percent and 0.03 percent respectively.
"Although the impact of energy price normalization on the CPI seems affordable, energy prices will not be raised to such a great extent. Refiners have been under less pressure recently due to a sharp fall in the crude oil price," said Wei Weixian, an economist from the University of International Business and Economics.
"And many industries have suffered from higher raw material and labor costs, so I predict that energy prices will not surge by 10 percent in the short term, and are more likely to rise by up to 5 percent," he added.
However, Cai Zhizhou, an economist from Peking University, disagreed.
He said that a 10 percent hike in energy prices would be "normal" and not have a major impact on CPI.
"And increasing energy prices is an important way to optimize the industry structure, so hi-tech and environmentally friendly firms can come to the fore."
Source: China Daily