MercoPress. South Atlantic News Agency

Fastest wholesale inflation expansion in China since 1996

China's main measure of wholesale inflation accelerated in July to its fastest since 1996, adding to headaches for the government as it tries to rein in surging consumer prices, according to data reported Monday.

The producer price index was up 10% in July compared with the same month last year, the official news agency said, citing the government statistics bureau. The index measures the price of goods as they leave the factory. That was up from June's 8.8% rate and in line with analysts' forecasts that rising costs for energy and raw materials would push up wholesale prices. That would add to pressure for retailers to raise consumer prices. Beijing has been trying for a year to rein in sharp increases in consumer prices. 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. However Zhang Liqun, senior research fellow at the State Council's Development Research Center said the surge in producer prices isn't likely to flow through to consumer prices "soon" because of the extremely competitive market for goods. China rose last month lending quotas for banks and increased tax rebates on exports of textiles and garments as export growth cooled. The Yuan has fallen 0.2% against the US dollar this quarter after gaining 4.2% in the first quarter and 2.3% in the second. The world's fourth-largest economy expanded 10.1% in the second quarter from a year earlier, down from 10.6 percent in the three months through March. The producer price of crude oil jumped 41% in July from a year earlier after rising 36% in June, the statistics bureau said. Ferrous metals climbed 31%. China raised state-controlled fuel and electricity prices in June and July. But tumbling commodity prices have increased the likelihood of producer-price inflation slowing in coming months. The data sent the Shanghai Composite tumbling 5.2% to close at 2,470 points, down 60% from last October's peak. Investors are concerned that rising inflation combined with the prospect of slower economic growth will hurt company profits. On the bright side China reported a rise in its trade surplus, which swelled to its highest level in eight months in July, despite the economic slowdown hitting many of its customers overseas.