China's Wholesale Prices Surge 10% in July

BEIJING (AP) -- China's wholesale inflation in July accelerated to its highest rate in 12 years, adding to the government's headaches as it tries to rein in surging consumer prices, according to data reported Monday.

The producer price index was up 10% in July over the same month last year, the highest rate since 1996, the Xinhua News Agency said, citing the government's statistics bureau. The index measures the price of goods as they leave the factory.

Analysts have warned that rising costs for energy and raw materials would push up Chinese wholesale prices, squeezing thin profit margins for companies and adding to pressure for retailers to raise consumer prices. The government is due to announce July consumer inflation on Tuesday.

The July rise in the producer price index, or PPI, exceeded analysts' expectations and was a sharp jump over June's 8.8% rate.

"It is perhaps still too early to conclude that PPI growth has peaked," Sherman Chan, an economist for Moody's Economy.com, said in a report to clients.

"The sharp acceleration in producer price inflation seen in recent months is a concern to policymakers, as this poses a strong upside risk to CPI (consumer price index) growth," Chan said. "In the next few months, the authorities will likely further tighten monetary policy and impose price curbs to deal with this inflation risk."

Beijing has been trying for a year to control surging consumer inflation. It is trying to raise farm output to bring down food costs and imposed price controls on basic goods. Consumer inflation eased in June to 7.1%, a decline from a peak of 8.7% in February but well above the official target of 4.8% for the year.

The price rises initially were blamed on shortages of grain and pork, but costs for labor, energy and a wide range of goods also are climbing. The government boosted state-set fuel prices in June to curb rising demand, adding to producer costs.

Producer prices for raw materials, fuel and power rose 15.4% in July over the same month last year, up from June's 13.5% rate, Xinhua said.