China's annual inflation quickened to a higher-than-expected 6.5 per cent in July, putting the central bank in a bind as it tries to keep prices in check without dragging down an economy facing increasing threats from abroad.
The unexpected pick-up kept inflation at its highest mark since June 2008, when global oil prices were soaring toward a record high.
China has acknowledged that inflation will exceed its annual target of 4 per cent this year. But with debt crises raging in the United States and Europe, the People's Bank of China is widely expected to hold interest rates steady.
Later today China will release figures on retail sales, industrial output and domestic investment, which are expected to show the economy held up well even as troubles deepened in two of its biggest export markets, the United States and Europe.
But given China's high inflation, it may not be in a position to reprise its 2008 role of lifting the global economy. Back then, when the Lehman Brothers bankruptcy triggered a worldwide slump, China quickly ramped up a big stimulus package, helping to buffer its own economy and buoy the world.
Since October, China has raised interest rates five times and cash reserve requirements for banks nine times to combat quickening inflation.
But those measures have not been enough to cap price pressures. Economists had hoped that June might have marked the inflation peak. Although oil prices have dropped sharply since early May, food costs keep climbing.
Today''s data showed food inflation at 14.8 per cent from a year earlier, up from 14.4 per cent in June. Non-food price pressures actually eased to 2.9 per cent from 3 per cent a month earlier.
Pork prices, which were the primary culprit behind June's hot inflation figures, soared again in July despite a slight cooldown in the second-half of the month. They jumped about 57 per cent in the year to July, lifting the consumer price index by a hefty 1.5 percentage points.
Overall, the month-on-month rise in the consumer price index was 0.5 per cent, ahead of forecasts for a 0.3 per cent rise.
The producer price index was up 7.5 per cent year on year.
