By Simon Rabinovitch and Eadie Chen - Analysis

BEIJING (Reuters) - China's surprise increase of fuel and power prices on Thursday will not only not undermine the country's fight against inflation, the move reflects growing confidence overall price pressures can be contained.

The unpleasant news for motorists that their bill at the pumps is going up overnight by as much as 18 percent prompted consternation and anger about the rising cost of life.

Economists, however, took the announcement with far greater sang-froid.

Higher resource prices will undoubtedly feed into inflation, but in a nation where consumers spend relatively little on fuel products, the impact will be relatively small, they said. So the result would be an additional percentage point, or even less, to consumer inflation over the rest of this year, by most estimates.

Food prices, the dominant source of inflationary pressure in China over the past year, have dipped over the past two months, allowing headline inflation to slow to 7.7 percent in May from 8.5 percent in April.

"That is a significant decline and that also gave them a window of opportunity to make the price hike," said Qing Wang, Morgan Stanley's chief China economist.

There are, however, clear risks in the sudden policy change.

Though consumer inflation has retreated somewhat, it is still within striking distance of 12-year highs.