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Food Pushes Inflation to Likely 10-Year High

China's inflation probably accelerated to the highest in a decade in August as food costs soared and the nation's second-highest monthly trade surplus pumped cash into the economy.

Consumer prices rose 5.9 percent in August from a year earlier, according to the median estimate of 24 economists surveyed by Bloomberg News, after gaining 5.6 percent in July. The trade surplus likely rose 38 percent to US$25.9 billion.

Inflation figures are due to be released at 10 AM today.

The highest inflation since January 1997 will add pressure on the government to prevent price increases spreading beyond food.

Premier Wen Jiabao said last week that the economy is at risk of overheating and the central bank ordered lenders to set aside larger reserves for the seventh time this year.

"The central bank has turned more hawkish and concerned about inflation widening from food to other areas," Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai, told Bloomberg.

Green sees another interest-rate increase this year.

Pork prices in China, the world's biggest producer and consumer of the meat, have soared because of a pig shortage linked to blue-ear pig disease and increased feed costs. Food accounts for one-third of the consumer price index and meat for seven percent.

The world's fourth-largest economy expanded 11.9 percent in the second quarter from a year earlier, the fastest pace in more than 12 years.

Producer prices rose 2.6 percent in August, accelerating for the first time in four months, after gaining 2.4 percent in July, the National Statistics Bureau said yesterday.

The August surplus brings the trade gap for the first eight months to US$163 billion, up 72 percent from the same period in 2006.

According to the Bloomberg News survey, China's exports were likely to have risen 25 percent and imports 21 percent in August. That means China sells about US$130 million of goods overseas every hour.

(Shanghai Daily September 11, 2007)

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