March 11 (Bloomberg) -- China's inflation accelerated to the fastest pace in 11 years as the worst snowstorms in half a century disrupted food supplies, adding pressure on the central bank to raise interest rates.

Consumer prices climbed 8.7 percent in February from a year earlier after gaining 7.1 percent in January, the statistics bureau said today. That was faster than the 7.9 percent median forecast of 22 economists surveyed by Bloomberg News.

Food costs soared 23 percent after blizzards destroyed crops and snarled transport links, causing shortages. China, the biggest contributor to global growth, raised rates six times last year in a failed attempt to curb prices and more increases risk triggering an economic slump as export demand weakens.

``They must raise interest rates big time -- at least two to three percentage points this year,'' said Andy Xie, former chief China economist at Morgan Stanley, now an independent analyst in Shanghai.

The key one-year lending rate is at a nine-year high of 7.47 percent. The deposit rate is 4.14 percent, less than half the pace of inflation.

``We need to stay calm and take effective measures,'' the statistics bureau said in a statement. It will be ``more difficult to control full-year inflation'' because of the storms, the bureau said. The government aims to cap price gains at 4.8 percent for 2008.

Lenovo `Worried'

The yuan closed at 7.1029 versus the U.S. dollar at 5:30 p.m. in Shanghai from 7.1099 before the data was released. The yield on the benchmark 15-year bond rose 1 basis point to 4.17 percent.

``We are worried that rising prices in China as well as a possible rise in interest rates may increase our labor costs and add pressure to production costs,'' Yang Yuanqing, chairman of Lenovo Group Ltd., China's largest maker of personal computers, said at a briefing in Beijing.

The government has named overheating as the biggest challenge this year for the world's fastest-growing major economy, even as export growth weakens partly because of a U.S. slowdown. Overseas shipments rose 6.5 percent in February, the least in almost six years.

Morgan Stanley, Lehman Brothers Holdings Inc. and Zheng Xinli, deputy policy research head of the Communist Party, say inflation probably peaked in February on the storms. Inflation is ``too high,'' Hu Xiaolian, head of China's currency regulator, said today.

Pork, Cooking Oil

Pork prices soared 63 percent from a year earlier, vegetables climbed 46 percent, and edible oil rose 41 percent, adding to the burden on the 300 million people estimated by the World Bank to be living in poverty. The state-run People's Daily Online reported last week that most respondents in a survey of 100,000 people described inflation as ``unbearable.''

``Food prices make up one third of the consumer-price index but for poor households it makes up more than 50 percent of their household budgets,'' said Sherman Chan, a Sydney-based economist with Moody's Economy.com.

In January, the government ordered food companies such as Uni-President Enterprises Corp., an instant-noodle maker, and China Mengniu Dairy Co., a milk producer, to seek approval for any price increases.

``If food inflation stays high for too long this will trigger non-food inflation,'' said Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong. ``If your food bill keeps going up, you ask for a raise -- then your boss raises his product prices.''

Banks' Reserve Requirements

China's producer-price inflation, the price of goods as they leave the factory gate, accelerated to 6.6 percent, the fastest pace in more than three years, in February.

The central bank has pushed banks' reserve requirements to the highest ever to help cool the economy after an 11.4 percent expansion last year. China contributed 20 percent of global growth in 2007, according to an estimate by the International Monetary Fund.

Non-food inflation was 1.6 percent, up from 1.5 percent in January. Excluding food and energy, prices rose 1 percent.

China's leaders may raise rates this week to signal their determination to fight inflation as legislators meet at the National People's Congress, said Ha Jiming, chief economist at China International Capital Corp. in Beijing.

Central bank Governor Zhou Xiaochuan said March 6 that there's room for more rate increases, although any decision is complicated by U.S. Federal Reserve cuts and the government's goal of increasing consumer spending.

`Hot Money'

Raising rates when the Fed has cut them risks attracting more overseas investment into a financial system already flooded with cash from export sales. The government needs to tighten controls on inflows of so-called ``hot money,'' Li Deshui, the former head of the statistics bureau, said March 8.

Economists are split on whether rate increases will do much to rein in prices.

``A rate hike does not help to increase the supply of food or the supply of pork,'' said Sun Mingchun, an economist with Lehman Brothers Inc. in Hong Kong.

Liang Hong, senior economist with Goldman Sachs Group Inc. in Hong Kong, said rapid growth in money supply was the main cause of inflation.

Gains by the yuan play a role in cooling inflation without being the largest factor, the central bank's Zhou said March 6. The currency has climbed 2.8 percent this year versus the dollar, after a 7 percent increase in 2007.

To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

Last Updated: March 11, 2008 06:12 EDT