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Raw Material Prices Spark China Inflation Concern

Fast-rising oil, steel and coal prices are adding to inflationary pressure in China, the country's top economic planning agency said on Friday.

"At present, continuous increases in material prices are not only boosting production costs but also putting extra pressure on the overall price level," the National Development and Reform Commission said in a statement released to reporters at a regular news conference.

Zhu Hongren, vice-head of the NDRC's economic operations department, said higher upstream prices could stoke consumer inflation if firms manage to pass on the costs.

China's consumer price index rose 6.2 percent in the 12 months to September, down slightly from a decade-high 6.5 percent in the year to August.

But Zhu said it was too early to declare that inflation has peaked. "You can't just look at one figure and make that conclusion," he said.

The NDRC said prices of steel used in construction had reached all-time highs, while the cost of oil, cement, glass and coal were all rising and pushing up overall upstream prices.

Apart from rapid increases in the price of raw materials, the major economic problem facing China was excessive growth in energy-intensive, highly polluting sectors, the commission said.

The key to keeping the world's fourth-largest economy from boiling over was to restrain excessive growth in industries that are suffering overcapacity or that guzzle energy and spew out pollution, the NDRC said.

In line with that imperative, it said China would continue to rein in exports of energy-intensive products.

Reflecting industrial growth, the service sector's contribution to gross domestic product in the first nine months shrank to 38.7 percent from 42 percent in the first quarter and 39.2 percent in the first half, the NDRC said.

Government ministries would step up coordination of industrial, fiscal, credit, land-use, environmental and investment polices to keep growth in check, the agency added.

Annual GDP growth slowed to 11.5 percent in the third quarter from 11.9 percent in the second, but the government says that is too fast and cannot be sustained without putting intolerable strain on the environment and China's resources.

Turning to fuel, the NDRC played down supply shortages that prompted it to raise prices by 10 percent late on Wednesday.

"At present there are some fluctuations in the supply of oil products in some regions due to high international oil prices, but the basic balance in the supply and demand of oil products remains unchanged," the commission said.

Diesel especially has been in short supply in some parts of China as soaring crude prices prompted refiners to cut output rather than swallow mounting losses by selling at the regulated, below-market prices.