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By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-09-11 10:34

Consumers shops for pork at a supermarket in Suzhou, East China's Jiangsu Province September 7, 2007. [newsphoto]

Consumer inflation in China jumped to the highest level in nearly 11 years in August as food prices continue to surge, raising the possibility for another interest rate hike.

The Consumer Price Index (CPI), a barometer of inflation, rose 6.5 percent year-on-year in August after a 5.6 percent increase in the previous month, the National Bureau of Statistics said Tuesday in a statement on its website.

The growth beats the six-percent expectation most economists had, and is well above the official target of three percent for the whole year.

Meanwhile, the Producer Product Index (PPI), a measure of inflation at the wholesale level, increased 2.6 percent in August, 0.2 percentage point higher than in July, the bureau said on Monday.

That marked a reversal from a steady slowdown in PPI in the past few months, which analysts said indicated that inflationary pressure is spreading from the consumer sector to other sectors of the economy.

In a breakdown of August's CPI figures, food prices jumped 18.2 percent year-on-year, while non-food items rose only 0.9 percent, the statement showed.

Among foodstuffs, meat and meat products reported the biggest increase, up 49 percent, followed by a 34 percent hike in cooking oil, and a 23.6 percent rise in eggs. Grain prices went up 6.4 percent.

In August, rural areas saw a 7.2 percent price increase, compared with 6.2 percent for urban areas, according to the bureau.

From January to August, the CPI growth was 3.9 percent, the bureau said in the statement.

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Central Bank Governor Zhou Xiaochuan expressed his concerns about inflation on Monday at a meeting in Switzerland. "Curbing inflation is our objective," he said.

Earlier this month, Zhou said his agency hoped to turn the real interest rate positive, indicating more interest rate hikes may come in the next few months.

China has raised interest rates four times so far this year, with the last one on August 21 when the benchmark one-year deposit rate rose to 3.60 percent.

However, the return on deposits is still below the inflation rate, indicating a loss of purchasing power if people put their money into banks.

That is encouraging an exodus of bank deposits to the country's red-hot stock market, which has doubled so far this year.