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China allows cooking oil prices to rise
by Staff Writers
Shanghai (AFP) Aug 4, 2011

China has allowed cooking oil producers to hike prices to cover rising raw material costs, companies and state media said Thursday, but the government denied that it was intervening in the key market.

Increasing cooking oil prices is significant in a country where most food is fried and would put more pressure on the stretched budgets of the poor in China, where inflation -- and its potential to cause social unrest -- is a huge concern to the government.

Singapore-based Wilmar International, a major edible oil supplier in China, has been permitted to raise the prices of its products by around five percent starting from August, the company said in a statement.

The rise, which it said was approved by China's powerful economic planner the National Development and Reform Commission (NDRC), was the first increase since October 2010.

Chinese business magazine Caijing said state-owned food conglomerate COFCO also received "tacit consent" to raise prices to cover soybean costs which have been rising since last year.

But the official Xinhua news agency quoted an unnamed official in the NDRC's pricing department saying the reports of price hikes had "no basis in fact".

"Prices of cooking oil products are market-based and therefore there is no such thing as a limit on prices, let alone approval for price increases," the official said.

A spokesman for the NDRC declined to comment when contacted by AFP.

State media reported in December that the NDRC had asked several major edible oil companies, including Wilmar and COFCO, to refrain from raising prices in an effort to rein in inflation.

Authorities have been intervening directly in the commodity market, warning a number of companies not to increase prices as they crack down on hoarding and offer subsidies to the poor.

In May, the NDRC fined consumer products giant Unilever for "illegally disseminated news of price hikes" that sparked panic-buying of shampoo and detergents, but it later decided not to punish the firm, state media said.

Food prices have soared this year after severe summer floods destroyed crops in regions previously affected by drought while a shortage of pigs has driven up the cost of pork, a staple meat in the Chinese diet.

In June, the country's consumer price index (CPI) rose 6.4 percent -- the highest level in three years -- further fuelling concerns in the ruling Communist party about inflation's potential to trigger social unrest.

Prices of food, which constitutes around one-third of CPI, were up 14.4 percent from a year earlier, partially driven by a 57.1 percent jump in prices of pork.

The move was in line with expectations that inflation may have peaked in July, but price pressures remain significant and authorities are unlikely to loosen monetary policy in the second half, said Liu Ligang, a Hong Kong-based economist with ANZ Banking Group.

"Raw material prices relevant to cooking oil prices are surging this year, eroding the profits of suppliers, especially state-owned companies. They have to consider the interest of manufacturers," Liu said.

The NDRC said earlier this week that keeping prices at "basically stable levels" would remain its policy focus in the second half of the year.

China is scheduled to release consumer inflation data for July early next week.

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