June 11 (Bloomberg) -- China's producer-price gains accelerated to the fastest pace in more than three years in May, underscoring the threat that consumer inflation will rebound.

Factory-gate prices rose 8.2 percent from a year earlier, the National Bureau of Statistics said today, after gaining 8.1 percent in April.

China's government is trying to prevent demand for materials for earthquake reconstruction work from fanning inflation, today ordering local officials to ensure supplies and curb ``irrational'' price increases. The central bank on June 7 told lenders to set aside more of their deposits as reserves to stop cash in the financial system from stoking price gains.

``The acceleration is worrisome -- the higher costs will eventually be passed on to consumers,'' said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. ``I don't think the government is ready to relax monetary policy yet.''

The yuan traded at 6.9228 versus the dollar as of 11:59 a.m. in Shanghai after closing at 6.9255 yesterday. The increase in producer prices was less than the 8.3 percent median estimate of 15 economists surveyed by Bloomberg News.

Rising raw material costs are an Asia-wide problem. Japan's wholesale prices rose at the fastest pace in 27 years, a report showed today.

``The rise in producer-price inflation threatens to feed through into sustained higher levels of consumer-price inflation, even as food prices, the main contributor to the current bout of inflation, stabilize,'' said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong.

Consumer Prices

Consumer-price inflation slowed last month to 7.7 percent from an almost 12-year high of 8.5 percent in April, two government officials said yesterday, citing statistics bureau data.

The producer price of gasoline rose 11 percent in May from a year earlier after gaining 10.8 percent in April. Ferrous metals jumped 26.7 percent after climbing 24.8 percent, the statistics bureau said.

Company profits are getting squeezed by rising costs. Shanxi Taigang Stainless Steel Co., China biggest maker of the rust-resistant alloy, said first-quarter profit fell 24 percent because of rising raw-material prices.

The combined net income of industrial companies rose 16.5 percent in the first two months of 2008 from a year earlier, the slowest pace in more than two years. The cumulative figure is next updated this month.

Interest Rates

To cool inflation China has ordered banks to set aside bigger reserves five times this year and allowed the yuan to gain more than 5 percent versus the dollar to reduce import costs.

Standard Chartered Bank predicts four interest-rate increases this year after six in 2007. So far, the central bank has kept rates on hold to avoid attracting more speculative capital from abroad.

Purchasing prices jumped 11.9 percent in May from a year earlier and 10.6 percent in the first five months, the statistics bureau said.

China's economy, the world's fourth largest, expanded 10.6 percent in the first quarter from a year earlier. The nation is rebuilding after the May 12 Sichuan quake.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: June 11, 2008 01:31 EDT