We will get the consumer price figures for July today: prices rose at an annual rate of 7.1% in June.
The Chinese stock market had its worst week in six weeks in the wake of the sharp rise in the PPI, which was up from an annual rate of 8.8% in June.
The CSI 300 Index fell 5.2% to an 18-month low: its now off 54% this year after more than doubling in 2007.
The trade surplus and the 26.9% in exports to $US136.7 billion topped all estimates and was surprisingly ahead of the 17.6% rise in June.
Imports jumped 33% in July from June's 31% rise, indicating the surge in commodity prices is a major factor in Chinese trade and inflation figures.
But with commodity prices tumbling (and oil, copper and many other commodities down again overnight) there's now a strong prospect that the PPI and then consumer prices could very well drop in months to come.
But there are fears that the rise in domestic costs and the price controls preventing full recovery of those added costs at a retail level for many businesses, are cutting profits. Hence the continuing slump in Chinese shares prices.
Subsidies take their toll on oil refiners, who pay market rates for crude oil and sell petrol at state-mandated prices.
Power companies' tiny increase in tariffs last month (5%) does not begin to offset the rise in coal prices. So China's tight power situation his made worse by small power companies stopping producing electricity.
China still has a slew of price controls in place and even though there have been some rises allowed in recent months in the cost of electricity (up 5% in early July) and diesel and products rose (by around 17% from the start of July in both cases), its not enough to restore margins.
It seems a combination of these rises and the surging market costs of energy and metal imports were the drivers behind the jump in official producer price inflation to that 12 year high last month.
The rises in the electricity, petrol and diesel fuel costs will also have an impact impact on July's consumer price figures, which are due out shortly.
It's been the uncontrolled wholesale prices that have taken the brunt of the sharp moves in world prices for commodities like oil: the retail selling prices are frozen, or have been allowed a couple of rises in the past 11 months.
The latest figures show that the producer price of crude oil jumped 41% last month from July 2007, after rising 36% in June. Ferrous metals climbed 31% after rising 29% in June on June 2007 (so there's a slowing evident in metals).
But since mid-July oil has led commodity prices sharply lower, and this should transmit through to the Chinese PPI in August and September, which should change the trend.
Chinese consumers have been relatively protected: it's the corporate sector that has borne the brunt, despite subsidies.
Domestic oil companies' margins have been hit, as have margins of metal processors.
That's partly why aluminium, zinc, lead and copper producers have combined to cut production.
The other major factor is to leave enough spare electricity generating capacity for the country to allow the Games to go on without an interruption.
That's because China has a precariously supply/demand balance for electricity and needs to step up construction of new coal and nuclear stations, import more gas (and build more pipelines) and import more energy.
Chinese and other economists say the rise in the PPI doesn't necessarily mean a rise in consumer prices because of domestic competition, and the widespread controls on food and other prices of essential goods until after the Olympic Games.
Consumer prices rose at an annual rate of 7.1% in June compared to a year earlier: that was down from the storm induced jump to an 8.7% annual rate in February.
The impact of the higher costs for electricity and petrol and diesel will show up in consumer prices, but even that will hit corporates because many producers won't be able to increase selling prices (especially food producers).
The rise though will worry exporters who are facing slowing demand in foreign markets for products. Export growth is down, partly because of the sluggish state of the Japanese, US and European economies, but also because of the rising Yuan.
To combat this weaker export performance and to reassure businesses that the government is pro-growth, the central authorities have loosened bank-lending quotas, raised tax rebates for some exports (textiles, for instance) and now frown on any more appreciation of the Yuan, which has gone back to being an administered currency.
China's economy grew 10.1% in the second quarter from a year earlier, down from 10.6% in the March three months, and around 12% a year ago. But 10% is still very strong growth and some of the fall can be traced to the impact of the snowstorm in January and early February, the bad floods in the south of the country and of course the Sichuan earthquake.
Some Beijing analysts say the Chinese government will make rebuilding Sichuan a big national campaign after the Games are finished, a move which will stimulate demand for a wide range of products, such as metals, concrete, bricks, wood, and energy.
In the first seven months of 2008, producer prices rose 8% from the same period of 2007. That's actually not a bad performance given that UK produceer prices are rising at an annual rate of 9%-10% and US producer prices at 9%.
Encouragingly exports to the US rose 9.9% in the first seven months of this year after being up 8.9% in the half year to June. Shipments to European rose 27% (all but unchanged) and exports to Japan rose 15.9% after increasing 15.1% in the six months to June.
