China's Producer Prices Rise in May

Sign that China is entering inflation era

China's producer or wholesale prices rose to their highest level in nearly four years in May, the government said June 11, with the cost of oil, commodities and raw materials fueling the increase. The producer price index, or PPI, gained 8.2% last month from a year earlier, the National Bureau of Statistics said, up 0.1 percentage point from April.

It was the highest level since October 2004, when it hit 8.4% year-on-year. "It's confirmation that China's entering the inflation era," said Andy Xie, an independent Shanghai-based economist. "There is a shortage of key imports and inflation is centering around those commodities that are in short supply," he said. "In time, the living costs will go up in general, and there will be wage inflation."

Producer prices are a critical measure of economic trends because they tend to trickle into consumer prices, which directly affect China's 1.3 billion people.

Raw materials prices rose 11.8% last month, while crude oil costs were up 30.9% in May and the prices of gasoline, kerosene and diesel were up 11%, 11.4% and 11.8%.

China's economy, the world's fourth largest, grew by 10.6% in the first quarter from a year earlier, slower than 11.9% for all of 2007, partially because the U.S. subprime crisis weakened demand for Chinese exports.

Copyright Agence France-Presse, 2008

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