May 13 (Bloomberg) -- China's producer prices rose in April at the fastest pace in three months as fuel costs surged, boosting chances the government will tighten investment restrictions to keep inflation in check.

Producer prices in the world's seventh-largest economy rose 5.8 percent from a year earlier after climbing 5.6 percent in March, the Beijing-based National Bureau of Statistics said on its Web site. Crude-oil costs jumped 37 percent and coal prices increased 26 percent.

``Sooner or later this will trickle down to consumer prices,'' said Qu Hongbin, a senior economist at HSBC Plc in Hong Kong. ``That's the real fear. The government needs to do more.''

China is restricting lending to industries including real estate, steel and cement to help cool an investment boom that's contributed to surging global commodity prices. Rising costs are cutting into profits at companies including Haier Group Corp., China's biggest maker of home appliances, which have been unable to pass increases on to consumers.

Baoshan Iron & Steel Co. raised prices of cold-rolled sheet, used to make car panels and home appliances, by 400 yuan ($48) a metric ton in the first quarter. Yanzhou Coal Mining Co., the only Chinese coal miner publicly traded overseas, doubled the price of its coal to 338 yuan a ton in the 18 months that ended in the fourth quarter of last year.

Fuel Costs

``One of this year's biggest challenges for us will be rising raw-material costs,'' said Haier Chairman Zhang Ruimin. Qingdao Haier Co., the group's Shanghai-listed unit, said April 28 its first-quarter profit dropped 28 percent as raw material costs rose and finished-goods prices fell amid mounting competition.

Producer prices of diesel increased 23 percent in April, while those of gasoline climbed 22 percent, today's report showed. Prices of consumer durables dropped 3.3 percent and clothing costs increased 0.7 percent.

Inflationary pressures may build this month after the government allowed power producers to raise electricity charges from May 1 to reflect soaring coal prices. In addition, diesel and gasoline prices, which are also controlled by the government, were raised this month.

Producer prices rose 5.6 percent in the first quarter, twice as fast as consumer prices, official figures show. The gap between producer-price inflation and consumer-price inflation widened to 2.9 percentage points in March from 0.9 percentage point a year earlier. The statistics bureau is due to report April consumer-price inflation figures on May 16.

Manufacturers are likely to mark prices higher as soon as market conditions permit and that may spur inflation, according to Qu. To prevent inflation accelerating, the central bank will probably raise its benchmark lending rate by 0.3 percentage point this year, he said.

The central bank on Oct. 29 lifted its key rate by 27 basis points to 5.58 percent, the first increase in nine years, after inflation accelerated to a seven-year high of 5.3 percent in the third quarter. The government said yesterday it will impose new taxes and restrictions on real-estate transactions to curb speculation after home prices surged 13.5 percent in the first quarter.

To contact the reporter for this story: Nerys Avery in Beijing at navery1@bloomberg.net

Last Updated: May 13, 2005 04:18 EDT