June 25 (Bloomberg) -- McDonald's Corp., the world's largest restaurant company, said it increased prices in China for the second time this year on labor, food and electricity costs in the world's fastest-growing major economy.

``Not only in China but worldwide there is a great deal of concern about rising food costs and higher utility costs, such as oil,'' Jeff Schwartz, chief executive officer of McDonald's China, said in an interview in Beijing today.

The 2.7 percent increase today doesn't fully cover higher costs and McDonald's may raise prices again this year, Schwartz said. China increased fuel prices last week, signaling that the government is confident that inflation pressures are easing, even as oil and commodity costs surge.

``Energy prices will continue to rise as the government gradually relaxes price controls,'' said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. ``Inflation is going to remain a problem for the next two or three years.''

The Filet O Fish, Quarter Pounder and Big Mac products each rose by between 0.5 yuan (7 cents) and 1 yuan, said Lisa Howard, the company's communications director in China.

``We are going to continue to monitor from month to month, because what is unknown is whether prices of utilities and labor will continue to rise,'' Schwartz said.

The average urban wage rose 18 percent in the first quarter from a year earlier.

Fuel Prices

China's inflation was 7.7 percent last month, down from a 12-year high of 8.7 percent in February. Gains have largely been driven by food costs.

More increases in China's retail fuel prices are likely if international oil prices stay at current levels, said Mark Williams, a London-based economist with Capital Economics Ltd.

``The bigger picture is that, on many measures, inflation seems to have peaked,'' Williams said. ``Even allowing for the recent rise in fuel prices, headline consumer-price inflation will be down at around 5.5 percent by the end of the year.''

Households' expectations for inflation are ``stabilizing,'' the central bank said in a report released on its Web site today. Fewer regarded prices as ``too high to bear'' than in the previous quarterly survey, the People's Bank of China said.

China's food prices climbed 19.9 percent in May from a year earlier, a slower pace than February's 23.3 percent increase, after vegetable and pork supplies recovered from blizzards and disease.

Yuan, Banks' Reserves

The central bank has allowed the yuan to appreciate 6.4 percent versus the dollar this year, a faster pace than during 2007, to reduce import costs. It also ordered banks this month to set aside a record proportion of deposits as reserves, to try to prevent excess cash in the economy from fueling price gains.

In the U.S., McDonald's Chief Operating Officer Ralph Alvarez said last month that costs were rising at the fastest pace in ``more than a dozen years.'' The company wasn't passing all increases on to consumers, he said.

McDonald's plans to add at least 125 restaurants in China this year for a total of more than 1,000, Schwartz said today. It aims to add at least 150 in 2009 and 175 in 2010.

The company now has 937, including 70 drive-through outlets, he said.

To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net

Last Updated: June 25, 2008 07:34 EDT