Finance & Business World

China's producer-price inflation accelerated at the fastest pace in more than three years on rising energy, commodity and labor costs.

Factory-gate prices rose 8.1 percent in April from a year earlier, the National Bureau of Statistics said today, after gaining 8 percent in March. That compared with the 8.4 percent median estimate of 20 economists surveyed by Bloomberg News and was the quickest since November 2004.

China is trying to cool inflation while avoiding a slump in the world's fastest-growing major economy as global demand fades. Surging raw material prices and a new labor law have added to company costs that may be passed on to consumers.

“Inflation is the first priority as economic growth is still pretty strong,'' said Eric Fishwick, head of economic research at CLSA Asia-Pacific Markets in Singapore.

For the first four months, China's producer prices rose 7.2 percent from a year earlier, the statistics bureau said. Purchasing prices jumped 11.8 percent in April from a year earlier and gained 10.3 percent in the first four months.

Producer prices of ferrous metals jumped 24.8 percent in April from a year earlier, after rising 21.2 percent in March, the statistics bureau said. Gasoline prices climbed 10.8 percent after gaining 9.9 percent and clothing costs increased 2.3 percent after climbing 2 percent.

Higher wages and energy and commodity costs led a third of manufacturers to raise prices in April, according to a survey by CLSA of more than 400 purchasing managers. Bright Dairy & Food Co., China's second-largest listed dairy company, said in April it would raise prices.

Wage Increases

The Labor Contract Law, imposed on Jan no teletrak payday loans. 1, mandates minimum wages and limits overtime work. The average wage in Chinese urban areas climbed 18 percent in the first quarter from a year earlier to 6,524 yuan ($932).

China's economy, the world's fourth largest, expanded 10.6 percent in the first quarter from a year earlier, down from 11.9 percent for all of 2007, as exports cooled.

China has allowed the yuan to gain almost 10 percent versus the U.S. dollar in the past year to cool inflation. A higher currency reduces import costs and the trade surplus by making exports more expensive.

The central bank may raise interest rates this year, according to 11 of 15 economists surveyed by Bloomberg News last month.

Borrowing Costs

China increased borrowing costs six times in 2007 and then paused as the U.S. Federal Reserve cut them. A widening of the rates gap between the two countries may attract capital inflows into China's economy, already flooded with money from the trade surplus and foreign investment.

The People's Bank of China has ordered lenders to set side more deposits as reserves three times this year, pushing the requirement to a record 16 percent.

Consumer prices probably rose 8.2 percent in April from a year earlier, compared with 8.3 percent in March and the 11-year record high of 8.7 percent in February, the Bloomberg News survey showed. The statistics bureau will release the figure on May 12.

Bloomberg data on China's producer prices starts in 1999.

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