Inflation Climbs in China on Higher Food Prices

Inflation in China accelerated last month to its fastest pace in three years, with consumer prices up 6.5 percent from a year earlier mainly as a result of rising food prices.

Further price increases could be on the way. The National Bureau of Statistics announced in Beijing on Tuesday morning that producer prices, which are primarily wholesale prices measured at the factory gate, were 7.5 percent higher in July than a year ago.

Jing Ulrich, the chairman of China markets at JPMorgan Chase, said in a research note that inflation could peak soon in China and then decline. The increase in consumer prices last month was slightly higher than expected while the rise in producer prices was a little smaller than expected.

Rising prices could make it harder for the Chinese government to cut interest rates or take other measures to stimulate the economy if weakness in the American and European economies causes a slowdown in Chinese exports.

China’s last burst of inflation, in the spring of 2008, ended abruptly when the global financial crisis worsened. When the Chinese economy slowed by early 2009, the authorities responded by rapidly increasing the money supply through currency market interventions and the authorization of heavy lending by state-owned banks.

Beijing officials continue to struggle with the aftermath of their huge expansion in the money supply in 2009 and 2010 in response to the global crisis.

Share prices fell sharply in early trading on the Shanghai and Hong Kong stock markets, echoing Wall Street’s steep drop on Monday. It was unclear the extent to which prices were also reflecting the latest Chinese economic indicators.

Tommy Yeh, the sales manager at the Beijiale Playground Equipment Company in Wenzhou, China, said that wages were up 10 percent in the last year while raw material prices were also climbing, squeezing profit margins.