BEIJING China's annual consumer price inflation hit an 11-year high in November, with new signs that price pressures are spreading from food to the broader economy, raising the prospect of more aggressive monetary tightening.
The rise in the consumer price index of 6.9 percent from a year earlier -- above the 6.4 percent forecast by economists and up from 6.5 percent in October -- underscored why the government sees the fight against inflation as a priority in the year ahead.
The country's gaping trade surplus is another concern, and separate data released on Tuesday showed that measures to curb exports and promote imports had narrowed it slightly in November.
However, while the $26.3 billion surplus was below October's record $27.1 billion, it was still the third highest ever.
Critics say the surplus is pushed up by an unfairly undervalued currency, a topic that will loom large at high-level Sino-American talks this week in Beijing. The yuan hit 7.3770 per dollar on Tuesday, the highest since its 2005 revaluation.
For now, economists are paying closer attention to inflation, which has been driven up largely by food costs.
In November, food cost 18.2 percent more than a year earlier, but the statistics showed wider price pressures. Annual non-food inflation accelerated to 1.4 percent in November, the sharpest rise this year.
"That's more of a source of concern, an indication that there's more tightness in commodity markets in China and of possible overheating," said David Cohen, an economist at Action Economics in Singapore.
Auto fuel and utilities were both up more than 5 percent from a year earlier after Beijing raised retail fuel prices in November.
"Since we expect continued hikes in energy and national resource prices, the utility component ... will likely continue to be a main contributor to CPI inflation in 2008," Mingchun Sun, an economist at Lehman Brothers, said in a note to clients.
Yao Jingyuan, chief economist of the National Bureau of Statistics, said that full-year inflation was likely to be about 4.7 percent, which would be the highest since 1996.
Last week China's top leaders announced they would shift to a "tight" monetary policy from what they called a decade-long "prudent" stance. Rising consumer price inflation should reinforce their determination, analysts said.
"We expect the central bank to respond to the strong inflation data with additional tightening measures," Yu Song and Hong Liang, Goldman Sachs economists in Hong Kong, said in a note to clients.
On Saturday, China raised banks' reserve requirements by a full percentage point to 14.5 percent. It was the 10th increase this year by the central bank, which has also raised interest rates five times in 2007.
China's trade surplus for the first 11 months of the year came to $239.3 billion, easily eclipsing the $177 billion total for all of 2007 despite weaker demand from the United States.
Exports climbed 22.8 percent and imports were up 25.3 percent in November from a year earlier, broadly in line with October.
"Even though China's exports to the U.S. have slowed down, its exports to the euro zone and the Middle East and other non-traditional markets have held up really well," said Tao Wang, chief economist at Bank of America in Beijing.
The United States and Europe have been piling pressure on Beijing to let the yuan appreciate more quickly to help rein in exports, and economists have said a faster rise in the currency could also help control inflation.
Zhou Xiaochuan, the central bank governor, said that although a stronger exchange rate was not the key to reducing the trade surplus, China would let the yuan move more freely next year.
"From the beginning, we have said that we would continue to deepen exchange rate reform and increase the flexibility of the yuan's exchange rate," he said.
In an apparent move to soften U.S. complaints ahead of the bilateral talks, the central bank set a yuan trading midpoint on Tuesday of 7.3793 per dollar, the highest level since it revalued the currency by 2.1 percent in July 2005 and unpegged it from the dollar to float in managed bands.
The yuan has since risen a further 9.9 percent.
(Editing by Alan Raybould)