China's Inflation Surges to 8.7%

China's inflation accelerated to the fastest pace in 11 years as the worst snowstorms in half a century disrupted food supplies, adding pressure on the central bank to raise interest rates., Bloomberg 3/11/2008 6:34:28 AM

Consumer prices climbed 8.7 percent in February from a year earlier after gaining 7.1 percent in January, the statistics bureau said today. That was faster than the 7.9 percent median forecast of 22 economists surveyed by Bloomberg News.

Food costs soared 23 percent after blizzards destroyed crops and snarled transport links, causing shortages. China, the biggest contributor to global growth, raised rates six times last year in a failed attempt to curb prices and more increases risk triggering an economic slump as export demand weakens.

The key one-year lending rate is at a nine-year high of 7.47 percent. The deposit rate is 4.14 percent, less than half the pace of inflation.

The yuan closed at 7.1029 versus the U.S. dollar at 5:30 p.m. in Shanghai from 7.1099 before the data was released. The yield on the benchmark 15-year bond rose 1 basis point to 4.17 percent.

The government has named overheating as the biggest challenge this year for the world's fastest-growing major economy, even as export growth weakens partly because of a U.S. slowdown. Overseas shipments rose 6.5 percent in February, the least in almost six years.

Pork prices soared 63 percent from a year earlier, vegetables climbed 46 percent, and edible oil rose 41 percent, adding to the burden on the 300 million people estimated by the World Bank to be living in poverty. The state-run People's Daily Online reported last week that most respondents in a survey of 100,000 people described inflation as ``unbearable.''

China's producer-price inflation, the price of goods as they leave the factory gate, accelerated to 6.6 percent, the fastest pace in more than three years, in February.

The central bank has pushed banks' reserve requirements to the highest ever to help cool the economy after an 11.4 percent expansion last year. China contributed 20 percent of global growth in 2007, according to an estimate by the International Monetary Fund.

Non-food inflation was 1.6 percent, up from 1.5 percent in January. Excluding food and energy, prices rose 1 percent.