Oil price will add little to China inflation: Researcher

Soaring oil costs will have little impact on Chinese consumer inflation, but will place considerable upward pressure on prices in the country's factories, a Chinese government researcher said on Thursday.

Deng Yusong, an economist at the Development Research Centre, a think-tank under the cabinet, said the weighting of oil in China's consumer price index (CPI) was too small to push the inflation gauge up by much.

His comments were published on Hexun.com, a Chinese financial news website, after oil prices hit a 29-month high on Thursday because of growing fears that political unrest in Libya could spread to other oil producers in the region.

"In the last decade, food and housing prices accounted for 90% of China's CPI change," Deng said. "So the impact of oil price changes on CPI is relatively small, but the impact of oil prices on the producer price index may be quite deep."

Economists estimate that prices for fuel, including oil, account for just 1 percent of the Chinese consumer inflation basket.

China's CPI rose 4.9% in the year to January, near a two-year high, driven by a jump in food prices.

The indirect inflation impact of a rise in the producer price index is also expected to be small, because factory-gate prices have limited pass-through to consumer price inflation in China. With many industries suffering from over-capacity, companies find it hard to charge more and could instead face squeezed margins.