Food and energy costs increase inflationary pressure The mainland's producer price index surged to a three-year high of 8.1 per cent last month, up 0.1 percentage point from March, indicating that inflationary pressure remains very strong. The National Bureau of Statistics attributed the surging PPI to rising food and energy prices. Analysts expect the April consumer price index scheduled for release next week to accelerate to about 8.5 per cent from 8.3 per cent in March. This would put more pressure on the People's Bank of China to further tighten monetary policies, they said. Last month, raw material prices went up 10.4 per cent while the price of crude oil rose 37.9 per cent. The prices of petrol, kerosene and diesel rose 10.8 per cent, 11.7 per cent and 10.2 per cent, respectively. Prices for food and related products grew 11.9 per cent in April. In the first four months of the year, the PPI rose 7.2 per cent from a year earlier, with procurement prices for raw materials, fuel and power up 10.3 per cent. Soaring international commodity prices including crude oil and grains have made it difficult for the mainland authorities to contain inflation. Yesterday, crude oil reached a record US$126.20 a barrel. While addressing a financial forum in Shanghai yesterday, Vice-Premier Wang Qishan said the government would strengthen macroeconomic controls through prudent fiscal policies and tighter monetary policies to guard against accelerating inflation. Guotai Junan Securities analyst Lin Zhaohui said that since domestic interest rates were negative in real terms and many countries were now turning to rate increases to fight inflation, the central bank was under mounting pressure to raise rates soon. But Qu Qing, an analyst with Shenyin Wanguo Securities, urged caution in raising rates. The impact of the subprime mortgage crisis in the United States on mainland exports remained unclear and aggressive interest-rate increases could hurt the economic growth momentum and lead to sharp job losses, he said. Meanwhile, price controls, weakening domestic consumption and the oversupply of consumer goods in the market will render it almost impossible for producers to pass on rising costs to consumers. Prices of production materials rose 9 per cent last month, up 0.28 percentage point from March. Prices of consumer goods were up 5.4 per cent, down 0.08 percentage point from the previous month, according to the statistics bureau. Fears of an interest-rate rise sparked a sell-off in the mainland and Hong Kong stock markets yesterday, with big-cap companies in the financial and real estate sectors leading the slide. The Hang Seng Index skidded 386.62 points or 1.52 per cent to 25,063.17, finishing the week down 4.49 per cent for just its second weekly decline in the past seven weeks. The Shanghai Composite Index fell 43.345 points or 1.19 per cent to 3,613.494, bringing its weekly loss to 2.16 per cent and snapping a streak of two straight weekly gains. 'People are still very cautious about the trend of the market,' said Kingston Lin King-kam, an associate director at Prudential Brokerage. 'They just want to sell first and see what will happen when they come back on Tuesday.' The Hong Kong market will be shut on Monday for a public holiday and reopen on Tuesday.