Soaring gasoline prices make drivers reconsider

With a heart for racing, Yang Liguang enjoys the moment when he overtakes other cars on the road. But after the fuel prices rose again in March, he has begun having second thoughts every time he wants to step on the accelerator pedal.

"The increase is obvious," said Yang, who drives a Honda Civic to work from Monday to Friday in Beijing. "I have to adopt a more gasoline-efficient way of driving now."

The price hike for petrol has not only altered people's driving habits but also the frequency with which they get into their vehicles. Leona Liu, who owns a Subaru sports utility vehicle, decided to cut back the numbers of trips she made to the capital's suburbs.

Each trip costs her about 200 ($32) to 300 yuan in terms of gasoline use. "It is not worth me while taking out my SUV with the price of fuel rising," said Liu, an account director at EBA Communications Ltd.

If the price of gasoline continues to rise, she will consider exchanging her SUV for a more fuel-efficient vehicle.

Drivers' sensitivity is not unreasonable. The fuel price increase in March was the nation's biggest since June 2009. The retail prices of gasoline and diesel have jumped to record highs of more than 8 yuan a liter.

The nation's top economic and industrial administrator, the National Development and Reform Commission, raised fuel prices by 600 yuan to 9,980 yuan a metric ton for gasoline and 9,130 yuan for diesel fuel on March 20. It was the second time this year there had been a rise. On Feb 8, the commission increased gasoline and diesel prices by 300 yuan a ton.

For individual motorists such as Yang, it means about 30 yuan more for each refill of gasoline, he said, a very significant rise even compared with that in February.

Taxi drivers who have also felt the pressure receive a government subsidy of around 300 yuan a month to offset the fuel price hike, according to the commission.

In Beijing, the local government raised the additional fee from 2 yuan to 3 yuan from the end of last month if a trip in a taxi exceeds the first 3 kilometers.

"The government subsidy has helped us to offset the impact of the fuel price increase," said Tian Wei, a veteran taxi driver in Beijing. "But the rise of the additional fee also drives away potential passengers, raising the vacancy rate and thus lowering our incomes."

Tian's biggest concern is to what extent the latest rise in the cost of fuel will affect inflation. "If prices go up, our real earnings will decline," Tian said.

China's consumer price index, a main gauge of inflation, expanded 3.6 percent year-on-year in March, the National Bureau of Statistics said on April 9.

The rate was higher than February's 3.2 percent figure, the lowest pace in 20 months.

A major driver of the growth, food prices, which account for nearly one-third of the weighting in the CPI calculation, increased 7.5 percent last month from one year earlier.

The wholesale prices of 18 staple vegetables rose for four consecutive weeks from February, an increase of 9.7 percent by early March, according to statistics from the Ministry of Commerce.

The price of pork, China's staple meat, went up 11.3 percent year-on-year in March, pulling back 4.6 percentage points from February.

Although oil price hikes have had only a minor effect on CPI growth as fuel only plays a small part in the calculation, the pass-on effect, which would affect the key logistics and transportation sector, should not be ignored, said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

He said the impact, in the short term, will be minor, because of the government subsidy given to the public transportation sectors.

But in the longer term, Lin said, the "butterfly effect" of the gasoline price rise will be more visible, reflected by an increase in prices of agricultural products, rising transportation costs and more expensive fertilizer.

Yuan Gangming, a researcher with Tsinghua University, was quoted as saying by the website China.com.cn that the oil price rise had a mildly negative impact on the CPI in March.

He attributes the price of agricultural products as key to the change in the CPI. But Yuan said the price hike is a burden on people's daily lives and suggested the government should take actions to ease concerns.

The fuel price increase has had a minor effect on the wholesale cost of vegetables but more on other forms of retail, experts said. Wang Jianmao, professor of economics at China Europe International Business School, told Neteast that he was not surprised by the result, saying the surge in the cost of labor and raw materials - particularly caused by the rise of fuel prices - led to the increase in the CPI.

He said the growth of fuel prices, such as diesel, will push up the price of agricultural products if most vehicles transporting agricultural products use diesel.

But Liu Tong, spokesman for Xinfadi, the largest agricultural wholesale market in Beijing, was reluctant to blame the hike in fuel price to the increase in vegetable prices. Most of the vegetables and fruit brought to Beijing is transported from Shandong province by vehicles that run on diesel. The transportation fees per vehicle remained at 3,000 yuan after the government raised the price of diesel, Liu said.

He added the driver has to cover the increase of 102 yuan for each 30 tons of vegetables per vehicle after the price for fuel rose. However, "the rise in the cost in transportation is not reflected in the wholesale price", he said.