Updated: 03/09/2013 11:57 | By Agence France-Presse

China inflation hits 10-month high

Chinese inflation rose more than expected to hit a 10-month high in February, official data showed, as holiday season spending and rapid credit growth accelerated price rises.


China inflation hits 10-month high

China inflation hits 10-month high

Inflation is a key issue for the ruling Communist Party as it brings with it the risk of popular discontent over rising prices and the threat of social unrest.

The consumer price index -- a main gauge of inflation -- rose 3.2 percent year-on-year in February, the National Bureau of Statistics said in a statement.

It was a spike from January's 2.0 percent and the highest since April last year, when it climbed 3.4 percent.

The figure was also ahead of the median forecast of 3.0 percent in a poll of 14 economists by Dow Jones Newswires.

Month on month the index rose 1.1 percent, the highest increase in 13 months, the bureau said, with food prices a significant driver of the rise.

China has set its inflation target for this year at 3.5 percent, lower than last year's goal of 4.0 percent but higher than the actual inflation rate for 2012, which stood at 2.6 percent.

"China is still under considerable inflationary pressure this year," outgoing Premier Wen Jiabao said this week in his "work report" to the opening of the National People's Congress, China's annual parliamentary session.

Zhang Zhiwei, an economist with Nomura International, said the rise in inflation was mainly due to China's loose monetary policy to spur growth and a consumer spending spree during the Lunar New Year holiday, which fell in February this year.

"If monetary policy remains at the current loose stance, CPI in 2013 will likely be much higher than the 3.5 percent target set in the National People's Congress," he said.

Chinese banks more than doubled their lending in January from December, the latest official data available showed, as the government seeks to boost economic growth after it fell to a 13-year low of 7.8 percent last year.

"Indeed, inflation is a policy risk looming large on the horizon," ANZ analysts Liu Ligang and Zhou Hao said in a research note.

Rising labour costs and rapid investment in urbanisation -- a key element of the Chinese government's future growth plans -- will also add to upward pressure on inflation, they said.

"We believe the People's Bank of China has already set in a tightening bias," they added.

Beijing has also voiced fears on imported inflation led by loose monetary policies adopted by central banks in major economies including the United States, Japan and the European Union.

"What I'm very concerned about for this year's economic situation is inflation, the competitive depreciation of currencies in the world and the negative impact on the global economy led by the excess issuance of money," Commerce Minister Chen Deming told reporters Friday.

Some analysts, however, downplayed the concerns, arguing it was premature to embrace tightening measures as the February reading was distorted by the Chinese New Year holiday.

"We expect limited market and policy impact as investors and officials understand the Lunar New Year distortions quite well," Bank of America Merrill Lynch analysts said in a note.

"Though policymakers should be wary of inflation later this year with economic growth recovery, it's too early to call for significant monetary tightening at present," they said.

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