China will increase domestic gasoline and diesel prices 4%-4.5% from Wednesday, in a move that indicates the government's confidence that inflation is still under control.

China will increase gasoline and diesel prices by 320 yuan ($46.81) a metric ton to reflect higher crude oil costs, effective Wednesday, the National Development and Reform Commission, the country's top economic planner, confirmed on its Web site Tuesday.

The rise represents an increase of 4.0%-4.5% over the current average gasoline and diesel retail ceiling benchmarks of CNY7,900/ton for gasoline and CNY7,160/ton for diesel, according to Dow Jones Newswires calculations.

China will also raise the benchmark ex-factory price of No.3 jet kerosene by CNY500/ton to CNY5,690/ton from Wednesday, it said.

The price increases are aimed to secure supply from peak farming and industrial demand season, promote energy conservation and cut emissions, it said.

The price rises will "boost April consumer price index by about 0.07 percentage points on month... but overall impact [on the economy] will be limited," it said.

China last raised fuel prices in November 2009, marking the longest period of inactivity since the government overhauled the way it sets oil product prices toward the end of 2008, when it established a mechanism whereby prices are reviewed every 22 working days.

Although the window for price increases opened as early as end-March, when the crude oil basket the NDRC tracks rose more than 4%, the market had speculated that the Chinese government may have refrained from any increases in order to rein in inflation. A severe drought in the country's southwest has already pushed up food prices.

China is scheduled to announce March's CPI, its main inflation gauge, later this week.

The central government's move to raise fuel prices shows that inflation is under control, said Wang Aochao, a research director with UOB Kay Hian.

China 's CPI likely accelerated 2.6% in March from a year earlier, a bit slower than February's 2.7% rate, according to a Dow Jones Newswires survey.

The nation's state-owned refiners, including Hong Kong-listed China Petroleum & Chemical Corp. (SNP) and PetroChina Co. (PTR), would benefit from the price rises, but the increases won't be enough for them to break even in refining margins, Wang said.

China 's refinery heads have been lobbying the government to increase fuel prices as their refining margins have been hurt by rising crude oil prices.

Zhang Dafu, chairman of Sinopec Jinling Petrochemical Corp., said in March that his refinery had been running at a loss since July as the oil product pricing mechanism hadn't been strictly followed and domestic fuel prices weren't able to cover crude feedstock costs.

He said then that domestic fuel rates were equivalent to having a crude oil price of around $67 a barrel.

At 1400 GMT, the front-month May light, sweet, crude contract on the New York Mercantile Exchange was trading $1.05 lower at $83.29 a barrel.

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