BEIJING (AFP) — China's inflation hit its highest rate in almost 11 years in August while the nation's trade surplus soared again, official data showed Tuesday, signalling more interest rate hikes ahead.
The data helped trigger a sell-off on China's stock market, with share prices tumbling 4.51 percent in their biggest one-day fall in more than two months as investors fretted over expected government moves to slow the economy.
Propelled by soaring food costs, China's consumer price index rose 6.5 percent in August from a year earlier, the National Bureau of Statistics said.
The inflation rate was well above the official full-year target of 3.0 percent and the highest since December 1996.
Meanwhile, customs data showed the trade surplus hit 24.97 billion dollars in August, the second-highest on record behind only the 26.91 billion dollars in June, adding more fuel to trade tensions with the United States and Europe.
Economists said the government would act quickly following the August data despite already raising interest rates four times this year as part of a package of measures aimed at slowing the nation's runaway economy.
"We expect the central bank to respond to higher inflationary pressures with decisive tightening measures, including two interest rate hikes (by the end of the year)," Goldman Sachs economist Hong Liang said.
Economists said they expected other measures as well, including a rise in the amount of money banks must keep in reserve, which is aimed at slowing lending and reducing the amount of cash in the economy.
China has already hiked the bank reserve ratio seven times this year.
China's economy has so far shrugged off such cooling measures, growing 11.9 percent in the second quarter of 2007 and 11.5 percent in the first half.
Wang Tao, a Beijing-based economist with Bank of America, said the economy was expected to continue sizzling at those rates in the third quarter, and forecast full-year growth of 11.5 percent.
Such numbers have sparked worry among the top ranks of government, with Premier Wen Jiabao warning last week about the danger of overheating.
State media on Tuesday also quoted central bank governor Zhou Xiaochuan as saying the economic landscape pointed to further action by the government.
"Fighting inflation is our objective," Zhou said.
"The central bank may continue to (tighten monetary policy)."
The August inflation figure was fuelled in part by an 18.2-percent rise in food prices, including a 49-percent surge in the cost of meat.
Meat prices are a key concern for Chinese families, who on average spend about one third of their income on food.
The price of pork, a staple of most Chinese diets, has soared this year due to rising feed prices and a massive pig cull sparked by a respiratory swine disease outbreak.
In May, Wen called for steps to stabilise pork supplies and prices, warning "social stability" was at stake.
Economists said taming food prices remained a top priority as the ruling Communist Party prepared for its five-yearly leadership Congress next month, a politically sensitive time when social stability is paramount.
"Governments at every level are very concerned about the reaction from normal people to the rising prices, especially before the party Congress," said Bank of America's Wang.
Meanwhile, economists said the August trade surplus, 32.82 percent higher than the same month last year, would stoke tensions with major trading partners.
The August figure brought the surplus for the first eight months of 2007 to 161.76 billion dollars, nearly equalling the 2006 record full-year surplus of 177.47 billion dollars.
The United States and other nations argue China's yuan currency is being kept undervalued, giving Chinese exporters an unfair advantage.
Some US lawmakers are preparing legislation that would punish China if the yuan is not allowed to strengthen.
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