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May 12 -- China's inflation accelerated to close to the fastest pace since 1996 as food prices soared and the government slowed gains by the yuan.

Consumer prices rose 8.5 percent in April from a year earlier, the National Bureau of Statistics said today, after gaining 8.3 percent in March. That topped the 8.2 percent median estimate of 22 economists surveyed by Bloomberg News.

Food prices jumped 22 percent, a threat to social stability as the world's most populous nation prepares to host the Olympic Games this summer. Faster currency appreciation, while reducing import costs, also risks attracting more speculative funds into an economy flooded with cash.

``The yuan needs to appreciate at a much faster pace to reduce import costs,'' said Li Wei, an economist at Standard Chartered Bank Plc in Shanghai. ``The inflation situation is very serious and the government needs a clear solution.''

The yuan traded at 6.9843 versus the dollar as of 2.03 p.m. in Shanghai, from 6.9833 before the data was released. The currency has climbed about 0.4 percent versus the dollar since March 31 after a 4.2 increase in the first quarter that was the biggest jump since the end of a fixed exchange rate in 2005.

The key CSI 300 Index of stocks gained 0.8 percent.

The jump in food prices was more than the 21 percent increase in March. Meat climbed 48 percent. Non-food prices rose 1.8 percent, an unchanged pace.

Grain Prices

Grain ``may lead another wave of food price inflation'' as meat shortages ease in the second half of this year, said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. Food prices remain the government's biggest challenge and inflation's spread into other areas ``is still limited,'' Sun said.

Rice, wheat, corn and soybeans have risen to records this year, boosting hunger and malnutrition around the world, according to United Nations Secretary-General Ban Ki-moon.

Three people died last year in a food stampede at a cooking oil sale at a Carrefour SA supermarket in Chongqing, underscoring the threat to stability from rising prices. Soaring inflation helped trigger the Tiananmen Square protests that were crushed by the army in 1989.

Central bank Governor Zhou Xiaochuan said May 10 that the government will boost agricultural supplies to cool prices.

Economic Expansion

China's economy, the world's fourth largest, expanded 10.6 percent in the first quarter from a year earlier, down from the 11.9 percent pace for all of 2007, as exports cooled and blizzards closed factories. Consumer prices rose 8.7 percent in February, the biggest gain since May 1996.

The price of crude oil has doubled in the past year and copper has climbed about 24 percent since the start of this year, adding to China's import bill. Labor costs are also rising.

``Price pressures are still very big,'' said Isaac Meng, senior economist at BNP Paribas SA in Beijing. ``Higher inflation makes people's daily lives harder and weaker growth threatens jobs -- both are important social issues and the government can't ignore either.''

Central banks around the world are grappling with faster inflation and slowing growth. In Asia, Bank Indonesia on May 6 raised interest rates for the first time in more than two years and the Reserve Bank of India last month twice ordered lenders to set aside more reserves.

Zhou said May 5 that there's a possibility interest rates will rise. The central bank has kept the benchmark one-year lending rate unchanged at a nine-year high of 7.47 percent this year after six increases in 2007.

Overseas Funds

The government is concerned that rates higher than in the U.S. and the strengthening yuan are attracting overseas money to an economy awash with trade cash -- threatening to fuel inflation. China's foreign-exchange reserves, the world's largest, surged 40 percent to $1.68 trillion at the end of March from a year earlier.

The People's Bank of China will raise interest rates at least once this year, according to 11 of 15 economists surveyed by Bloomberg News last month.

China's central bank has ordered lenders to set aside more deposits as reserves three times this year, pushing the ratio to a record 16 percent. It also sells bills to drain cash from the financial system.

It's ``vital for the government to keep its tightening policy stance to anchor inflationary expectations,'' said Song Yu and Liang Hong, economists at Goldman Sachs Group Inc. in Hong Kong.

The government is targeting inflation of 4.8 percent this year, the same as the actual rate in 2007.

The average wage in Chinese urban areas climbed 18.3 percent in the first quarter from a year earlier to 6,524 yuan ($935). Producer prices jumped 8.1 percent in April from a year earlier, the fastest pace since November 2004.

Source: (Bloomberg)