China Inflation Near High, Trade Surplus Drops Slightly

China inflation up 8.5 percent to near decade-high levels despite attempts to control prices.

China's inflation rebounded in April to near decade-high levels, according to data released Monday, increasing pressure on Beijing to cool rapidly ascending prices and avert possible unrest ahead of the Summer Olympics.

The government also released data showing China's trade surplus fell by 1 percent in April. That could help to ease inflation by reducing the amount of money flooding into the booming economy. April's consumer prices rose 8.5 percent compared with the same month last year, the National Statistics Bureau said. That was up from March's 8.3 percent rate and just short of February's 8.7 percent, the highest inflation in 12 years.

"It is still far too early to claim success in the battle against inflation," Goldman Sachs economists Yu Song and Hong Liang said in a report to clients. Consumer prices have jumped since mid-2007, driven by food costs that hit 22.1 percent in April. The government has been trying to slow down the rising cost of pork, grain and other items by boosting supplies and placing a ceiling on the price of basic goods.

Meanwhile, the government ordered Chinese banks to increase the amount of money they hold in reserve, the fourth time this year, to curb lending and control inflation. The central bank raised the amount of deposits that banks must keep in reserve by 0.5 percent to 16.5 percent -- the highest level to date.

Economists say Chinese bank deposits are growing so fast that the increased reserves have had no direct impact on lending, but are meant as a signal to bankers to reduce credit. Soaring food prices are especially worrisome to Beijing because they hit China's poor the hardest.

There have been no reports of demonstrations, but inflation in the 1980s and '90s set off protests -- an embarrassment that communist leaders want to avoid ahead of August's Beijing Olympics, which they hope will showcase China as a prosperous, stable society.

A senior economic official, Vice Premier Wang Qishan, said Friday that Beijing will stick to tight monetary policies to cool inflation, but announced no new initiatives. Beijing has raised interest rates repeatedly over the past two years. Prices began to rise in mid-2007 as China ran short of pork, grain and some other basic goods.

The government has attempted to assure the public that China has enough grain and is paying farmers to raise more pigs. Efforts to boost food supplies, however, were hampered the most severe winter storms in decades, which wrecked crops and disrupted shipping.

The sharpest inflation has been limited to food but costs of raw materials and energy are edging up. April's nonfood inflation was 1.8 percent, matching March, which was the highest in more than a year, according to the government data.

Producer prices rose 8.1 percent in April, driven by rising energy costs, according to the government. April's 22.1 percent rise in food costs was fueled by a 68.3 percent jump in the price of pork, a 46.6 percent increase in that of cooking oil and a 13.6 percent increase for fresh vegetables.

China's global trade surplus in April fell by about 1 percent from the same month last year to $16.8 billion amid weaker global demand for Chinese goods, according to government data. The trade surplus with Europe jumped by 34.8 percent to $12 billion (7.8 billion euros) while that with the United States saw much slower growth, rising by 4 percent to $13 billion, according to the Chinese customs agency.

The growing Chinese trade gap with the 27-nation European Union has prompted the EU to join Washington in lobbying Beijing to ease currency controls and import barriers.