HONG KONG (Bloomberg) -- China's inflation accelerated at the quickest pace in 11 years and the trade surplus swelled, adding pressure on the central bank to raise interest rates and let the currency appreciate faster to cool the economy.

Consumer prices rose 6.9 percent in November from a year earlier after climbing 6.5 percent in October, the statistics bureau said yesterday. That was more than the 6.5 percent median estimate of 21 economists surveyed by Bloomberg News.
Surging food and fuel costs and a record $238 billion surplus in the first 11 months have prompted the government to name inflation and overheating as the biggest threats to growth. U.S. Treasury Secretary Henry Paulson is in Beijing to press for yuan gains that would narrow the trade gap and staunch the flow of money into the world's fastest-growing major economy.
“Liquidity from the trade surplus will continue to cause the economy to overheat in 2008,” said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. “The yuan will need to appreciate at a firmer pace, interest rates will rise and the reserve requirement for banks will go to 17 percent by the end of next year.”
The yuan gained by the most in a month against the dollar. The currency, which has climbed 12 percent since a fixed exchange rate was scrapped in July 2005, rose 0.22 percent to 7.3792 per dollar as of 4:46 p.m. in Shanghai from 7.3952 late Monday. It touched 7.3770, the highest since the end of the dollar link.
The People's Bank of China last week ordered lenders to set aside 14.5 percent of deposits as reserves, up from 13.5 percent. China's one-year lending rate is at a nine-year high of 7.29 percent after five increases this year.
-----------------------Export growth
People's Bank of China Governor Zhou Xiaochuan said yesterday that currency policy will be used to help narrow the trade gap.
A stronger Chinese currency would lower import costs and push up export prices. Export growth has slowed from 29 percent in the seven months through July to between 22 percent and 23 percent for each of the past four months, after cuts to tax incentives.
“A more flexible currency is especially important now, when the risks of inflation are clearly rising in the Chinese economy,” Paulson said last week.
The Treasury secretary, in Beijing for the so-called Strategic Economic Dialogue, is fending off calls in Congress for legislation to punish China for its currency policy.
The inflation rate is almost double the 3.5 percent pace in the U.S. in October. It's also more than the 3.01 percent increase in wholesale prices in India, the key inflation measure for the world's second-fastest growing economy, in the week ended Nov. 24.
China's inflation was 4.6 percent in the first 11 months, more than the central bank's 3 percent target for the year and the key one-year deposit rate of 3.87 percent.