Surging crude oil prices pushed up China's producer price index (PPI) by 6.1 percent in January over the same month last year, the largest monthly rise in three years, the National Bureau of Statistics (NBS) said on Monday.

The index, which measures the cost of goods when they leave the factory, leapt from 2.4 percent in August last year to the latest 6.1 percent in five months, indicating an accelerating price pressure.

Crude oil prices rose by 29.9 percent over January last year. Prices jumped 22.6 percent in November. No figure was available for December.

"The remarkable rise in oil prices is the main impetus driving up the index. The snow crisis also affected the prices as material supply was partially stranded in the havoc," Xu Lianzhong, an official with the National Development and Reform Commission (NDRC), told Xinhua on Monday.

"If oil prices in the international market continue to rise, the PPI in China will not decline in the short term," said Xu Guangjian, deputy director of the school of public policy and management at Renmin University, adding that China will continue to beef up macro control to cool the economy.

The costs of raw materials, fuel and power rose by 8.9 percent in January from a year earlier.

Manufacturers' prices of gasoline, diesel oil and kerosene rose 7.3 percent, 10.0 percent and 10.9 percent respectively.

The PPI for means of production was up 6.5 percent and that of domestic necessities from food to consumer durables went up 4.6 percent in general, said the report.

The price index of food, a major driving force of the CPI, ballooned by 10.4 percent, compared with the growth rate of 2.2 percent for garments and 3 percent for daily commodities. The prices of consumer durables dipped 0.6 percent, said the NBS.

Higher prices at the producer level could lead to rising consumer prices as producers might be pressured to increase prices of consumer products to offset rising costs.

Rising production costs would add to inflation pressure in future months, said Fan Jianping, an economist with the State Information Center, a government think tank. But he said there was no direct cause-and-effect relationship between the PPI and CPI.

Analysts believe government price control will take effect when material supply strain is eased after the worst snow disaster in decades.

A research paper released by the leading bank UBS said the gradual rise in domestic coal prices cannot continue for very long as the price of internationally traded thermal coal is forecast to reach US$100 per ton, compared with the 76-dollar price in China at the end of last year.

The price of crude coal surged by 14.9 percent in January over a year ago as the freakish weather gave rise to a coal shortage.

The rising prices of raw materials and assets will surely make foreign investment more expensive in China, thus cooling down the runaway investment to a moderate and steady growth, according to NDRC official Zhang Yingsheng.

The PPI went up by 5.4 in December and 4.6 percent in November last year. The increase for 2007 was 3.1 percent, 0.1 percentage points higher than the 2006 figure, said Yao Jingyuan, the chief economist of the NBS.

Many analysts believe the Consumer Price Index (CPI) figure for January, scheduled to be released on Tuesday, could pass 7 percent.

The Bank of China forecast the CPI for January would jump 7.5 percent or higher.

China has been taking tightening measures to curb inflation and implementing a tightening monetary policy. The country saw 11 rises in reserve requirement ratio and six interest rate increase last year to soak up liquidity and curb the runaway investment.

The country also vowed to improve balance by preventing the economy from becoming overheated and to guard against a shift from structural price rises to evident inflation.

The prices of refined oil, natural gas, and electricity were frozen in early January to fight the skyrocketing prices.

(Xinhua News Agency February 19, 2008)