China's producer prices up 6.6%, highest in 3 years

Updated: 2008-03-10 14:15

China's producer prices, a key inflation indicator, rose 6.6 percent year-on-year in February, the fastest rate in more than three years, suggesting consumers face more sharp price, according to data reported Monday.

Beijing is trying to rein in inflation that rose to 7.1 percent in January, the highest level in 11 years. Economists expect February's inflation rate, due to be announced Tuesday, to rise as high as 8.5 percent after snowstorms disrupted transportation and wrecked crops, causing temporary shortages of food and raw materials.

A Bank of China report said February's CPI could be as high as 8.3%. And a  National Development and Reform Commission official said the consumer price index would be higher than that in January, but "be lower than a two-digit figure."

Producer prices, which measure the cost of goods as they leave the factory, rose 6.6 percent in February over the year-earlier period, the National Statistics Bureau reported. It was the highest level since December 2004.

The six-month-old spike in consumer prices has been driven by food costs and blamed on shortages of pork and other items. But Monday's data suggested pressure for across-the-board price rises is mounting as factories and households compete for resources amid a boom that saw China's economy grow by 11.4 percent last year.

February's producer price rise was driven by a 37.5 percent jump in the cost of basic oil products and a 29.6 percent rise for some steel products, the statistics bureau reported. Prices of food-related raw materials rose by 11 percent.

China is trying to boost food production to ease shortages and has been nudging up interest rates, hoping to cool growth without causing the economy to tip into an abrupt slowdown.

State-set prices of gasoline, electric power and some other consumer necessities were frozen in September. In January, food producers were ordered to get official approval for any price increases.

Fertilizer prices also have been frozen to protect farmers.

But steel mills, factories and other producers must pay market prices for coal, iron ore and other raw materials.

Economists have warned that leaving price controls in place too long could add to inflation pressures by discouraging farmers and others from raising production, which would ease shortages and lower prices.

China suffered power shortages in February when the country's worst snowstorms in decades caught utility companies without adequate coal stockpiles after they cut purchases due to controls that barred them from passing on the rising cost to consumers.

Steel mills and factories cut back production, and the government was forced to organize emergency shipments of thousands of trainloads of coal to power plants.

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