China's producer price index (PPI) has broken into a double-digit gallop, reaching a 12-year high in July, a 10% jump year-on-year.

Meanwhile, the consumer price index (CPI) declined to a 10-month low of 6.3% in July. June's was 7.1%.

The trend of a rising PPI accompanied by a dropping CPI had been continuing for four months. The latest data was released by China's National Bureau of Statistics (NBS) on Aug 11 and 12.

In publishing the latest PPI on its website, the NBS also attached an analysis by Chinese State Council's Development Research Center researcher Zhang Liqun, who summed up three major factors for the jump.

First, global price surges – especially for resource-based commodities like oil, iron ore and other metals.

Second, seasonal and sudden surges in demand for certain raw materials, such as higher energy consumption over the summer led to increased demand for coal needed for fuel electricity generation.

Third, the Chinese government had upped the prices of processed oil and electricity for industrial use from June 20.

Zhang concluded that the high PPI was a result of conflict in demand and supply. However, he denied that the market equilibrium was in chaos, and maintained that the rising costs in production would not overflow into consumer prices in the near future.

He said that as China experienced rapid industrialization and urbanization, its demand for resources too expanded quickly.

He said not only the scale of domestic production of resource-based goods had expanded, imports of resources too increased, thus, encouraging price surges in the global market.

He added that all these happened when the US dollar was declining and the global market was left with vast amounts of hot money, which poured towards speculating on resource-based commodities in the futures market.

That further twisted the demand-and-supply balance and pushed up global prices, which were then imported into China and translated into the PPI, he explained.  

Though the rise in PPI would not directly impact the public's daily life, Zhang cautioned that it would increase costs for enterprises, and thus could hurt revenues and spur layoffs.

However, he believed such cost pressure could be alleviated by upgrading production technology. He also suggested policy makers to assist enterprises with taxation and credit measures.

In recent months, Chinese enterprises, especially small and medium ones, had been hard pressed under rising costs coupled with a harsher macro-environment, as the Chinese government tightened credit controls to curb inflation.

The credit crunch came in light of the CPI hitting a record high of 8.7% in February. However, the index started to show a downward curve since May, and finally came to 6.3% last month.   

Food products still made up the major chunks of price surges with a jump of 14.4% year-on-year, while non-food products went up by 2.1%.

Home renovation material and housing rentals went up by 8.8% and 3.8% respectively.

Meanwhile, prices that experienced a dive mainly came under the categories of educational and cultural services, and communication.

The index was higher for rural residents at 6.8% as compared to 6.1% for urbanites.

The cooling inflationary pressure had boosted hopes in some quarters for a more relaxed monetary policy. Some industry associations had recently pled for the government to dish out preferential policies or loosen credit controls to help enterprises cushion climbing costs.