Beijing: The Chinese government has raised the price of petroleum products by 18 per cent. This is expected to cause a dramatic rise in inflation, which is at a 12-year high. But the government has taken care not to upset the middle class by exempting bus and rail passengers and LPG users across the country besides the earthquake hit Sichuan region from the ill affects of the price hike. Beijing's decision caused global crude prices to initially drive downwards as speculators feared it might result in lesser consumption in China. But the price soon began to rise as economists suggested that China's oil purchases would not be seriously affected as a substantial part of its requirements were essential and cannot be reduced. Oil industry sources said the decision will mean high margins for refiners, who will be encouraged to boost production and thus reduce the pressure of shortages in the local economy. It will also mean savings for the government, which is spending billions of dollars on subsidizing the artificially low cost of oil. However, exacts numbers of government subsidy is not available. The price of gasoline has risen by 1,000 Yuan ($145) per tonne to 6,980 Yuan ($1,015), which is a rise exceeding 16%. The rise is 18% in the case of diesel which will now cost 6,520 Yuan ($949) per tonne. Aviation kerosene rose by 1,500 Yuan ($218) per tonne to 7,450 Yuan ($1,084). Announcing the decision, the National Development and Reforms Commission, said that the rising international price of oil had created "contradictions in the purchasing price of oil being higher than selling price of refined products that were becoming more glaring by day.' Obviously, the state-run oil companies have been finding it difficult to survive in the face of high crude prices and artificially low prices of refined products like petroleum. This is what prompted the government to hike price of petroleum by 11% last November. But government soon moved to freeze implementation fearing further rise in inflation. It is one of biggest challenges faced by China. TO CURB ENERGY CONSUMPTION