China's inflation accelerated at its fastest pace in 28 months in November

China's inflation accelerated at its fastest pace in 28 months in November, building the case for Prime Minister Wen Jiabao, to raise interest rates again.

Consumer prices rose more than expected 5.1 percent over the previous year, a statistical report showed today in Beijing. the producer price inflation was 6.1 percent, up from one of 28 economists surveyed by us had expected.

The strength of prices gains and capital flows in the fastest-growing economy may require the central bank to add to October increase in benchmark rates, the first since 2007. Officials yesterday raised the reserve requirements of banks for the third time in five weeks to drain money from the financial system.

"Beijing can and will focus on fighting inflation with all my heart," said Qu Hongbin, an economist at HSBC Holdings Plc in Hong Kong. An "immediate" increase in rates is likely that lenders and the reserve ratios may continue to rise, said Qu.

Consumer prices rose more than forecast 4.7 per cent average of analysts. In October, inflation was 4.4 percent. Today's data was leaked before the announcement, the Economic Information Daily reporting on yesterday's inflation numbers.

China, which overtook Japan as the second largest economy in the world in the second and third quarters, it lags behind Asian countries like Malaysia and South Korea in promoting borrowing costs. In China, inflation in the first 11 months was 3.2 percent, over the government target of 3 percent.

Rate speculation

London-based Capital Economics Ltd. said yesterday that a rate increase after senior officials to conclude an economic policy meeting in Beijing this weekend can not be excluded. " The Politburo has already officially announced that the country will change next year to a stricter "prudent" monetary policy.

Today's data indicate that the economy is bucking the monetary tightening curbs on energy use in industry and the enforcement of property speculation. The industrial-production growth accelerated to 13.3 percent last month from a year earlier, exceeding economists' estimates, the median of 13 percent.

Urban fixed asset investment also grew at a faster pace, rising 24.9 percent in the first 11 months of 2010 over the previous year, the report showed. Retail sales gained 18.7 percent in November from a year earlier.

"Big Guns"

"Inflation is emerging as the main challenge for policy makers in the coming months, and it makes sense for them to bring out the big guns," said Brian Jackson, an analyst at Hong Kong's Royal Bank of Canada, before today's data. Tools may include a faster pace of yuan appreciation and higher rates later this year, he said.

Food prices rose 11.7 percent in November from a year earlier, the most in more than two years, and costs related to the residence, such as water charges, electricity and rent were also a key factor inflation, the statistics office said today. Overall consumer prices rose 1.1 percent from the previous month.

The jump in producer prices exceeded analysts forecasts an average increase of 5.1 percent. The costs of manufacturers of raw materials like cement, steel, fuel and cotton have increased, according to a survey of purchasing managers said on December 1.

The benchmark rate for one-year deposits stood at 2.5 percent, less than the annual rate of consumer price inflation and the interest rate is 5.56 percent. The Shanghai Composite Index of stocks has fallen 10 percent from November 08 high, the policy of extending the loss this year to 13 percent, on concern tighter monetary reduce economic growth and profits.

Blocking of funds to

The central bank yesterday announced a 50 basis point increase in reserve ratios, from 20 December. This measure can block nearly 350 million yuan ($ 53 billion), according to Barclays Capital Asia Ltd. In addition to monetary policy, Wen is using administrative tools such as the sale of state food reserves, to cool prices.

The signs of inflationary pressures have included McDonald's Corp., the world's largest restaurant chain, pushing up prices, citing rising costs. The southwestern city of Kunming has imposed temporary price limits on "daily needs", says retailers like Wal-Mart Stores Inc. and Carrefour SA, to report any increase in price expectations.

Flow of cash into the economy of trade, foreign direct investment and betting on gains by the yuan has been added to a credit boom in exacerbating inflation risks. The trade surplus was $ 22.9 billion in November and also banks extended more than expected a 564 billion yuan of local currency loans.

Target Loan

Broad money supply, or M2, rose last month by 19.5 percent, the biggest increase in six months, the People's Bank of China said yesterday. M2 has grown 55 percent over the past two years and outstanding yuan-denominated loans have risen to 47.4 trillion yuan, 60 percent more than in November 2008.

Authorities are looking for slower credit growth, and economists, including Societe General SA, expect the government to establish a loan ceiling lower in 2011 than this year's target of 7.5 trillion yuan .

Inflation may have peaked in November and probably soften this month as "intervention price" to take effect and the impact of price increases earlier this year lava-year comparisons, Wang Qing, an economist in Hong Kong Morgan Stanley, said in a note of 06 December.