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The Honolulu Advertiser
Posted on: Wednesday, September 12, 2007

Pressure's on: Inflation in China at 11-year high

By Joe McDonald
Associated Press

Hawaii news photo - The Honolulu Advertiser

A woman shops for groceries in Beijing, where high inflation is being driven by a 49 percent surge in the price of pork and other meat.

WONG MAYE-E | Associated Press

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BEIJING — China's inflation surged to an 11-year high in August and the trade surplus grew, adding to pressure on Beijing to ease currency controls and raise interest rates to cool its sizzling economy.

Inflation rose to 6.5 percent, driven by a 49 percent jump in the price of pork and other meat versus the same month last year, the government reported. The trade surplus widened by 33 percent over the year-earlier period to $24.97 billion, the second-highest monthly level on record.

The jump in the trade gap could add to pressure from Washington for Beijing to ease controls that critics say keep its currency undervalued and add to its surplus. The U.S. Senate is already considering two measures that would impose sanctions if Beijing fails to take action.

China ran a $15 billion trade surplus with the United States in August, according to customs figures. Exports to the United States rose 16.7 percent to $20.9 billion, while imports of U.S. goods rose 15.5 percent to $5.9 billion.

China's trade surplus with the U.S. stands at $103.3 billion for the first eight months of the year, according to the Chinese government. It often reports a smaller figure than Washington for its trade gap with the United States.

The United States reported a trade deficit of $232.5 billion with China last year, its biggest ever with any country. The gap this year is expected to exceed that.

Beijing insists it is not actively pursuing a trade surplus. It has tried to narrow the trade gap by repealing rebates of value-added taxes on hundreds of products and imposing new taxes to discourage exports of steel and other goods considered energy-intensive or polluting.

The flood of export revenues is straining Beijing's ability to contain pressure for prices to rise amid a boom that saw the economy grow by 11.9 percent in the latest quarter. The central bank drains billions of dollars a month from the economy through bond sales and has piled up more than $1.3 trillion in foreign reserves.

August inflation was the highest monthly rate reported since December 1996. The spike in food prices, up 18.2 percent in August from a year ago, is especially worrisome to Beijing, because food costs hit its poor majority hard and could fuel unrest.

Authorities have blamed the surge on a shortage of pigs and higher prices for animal feed.

"We expect more monetary tightening to rein in inflation, including further rate hikes," Lehman Bros. economist Mingchun Sun said in a report to clients.

Chinese stocks registered their biggest drop in two months yesterday, with the Shanghai Composite Index tumbling 4.5 percent following the inflation report.