China's Producer Price Inflation Hits 3-Year High

China's producer price inflation jumped to a three-year high in January as transport disruptions caused by severe winter weather pushed up the cost of food and coal.

Prices at the factory gate were 6.1 percent higher than in January 2007, the National Bureau of Statistics said on Monday. That was up sharply from December's 5.4 percent rise and easily beat economists' forecasts of a 5.6 percent increase.

Rising prices for oil and raw materials also helped to boost the index to its highest level since December 2004.

"This will further build up inflationary pressure. The transmission from the Producer Price Index to the Consumer Price Index is smoother now than before as inflationary expectations are getting ever stronger," said Chen Jijun, an analyst at CITIC Securities in Beijing.

Market sources expect data on Tuesday to show that consumer inflation accelerated in January to 7.1 percent, a 13-year high, from 6.5 percent in December.

The government has capped or frozen prices of a range of everyday necessities, including fuel and food, to try to convince people that prices will not keep spiraling ever higher.

The central bank has also tightened its grip on monetary policy to try to keep a lid on inflation.

Despite the blow to the economy from snow storms in January and February, leading newspapers said on Monday that the People's Bank of China had no intention of relaxing its policy.

"It's massively premature to be looking at any easing or unwinding," said Glenn Maguire, an economist at Societe Generale in Hong Kong.

But he said price pressures were probably near their peak and doubted that January's data pointed to a new surge in inflation.

"Once we get past these supply-side dislocations, a lot of the administrative edicts on prices should begin to bite and we should see some stabilization in prices," Maguire said.