China's inflation spiked higher in February, adding to pressure on Beijing to prevent overheating and keep the recovery in the world's third-largest economy on track.
Consumer prices rose 2.7 percent in February over a year earlier, up from January's 1.5 percent increase, the National Bureau of Statistics reported Thursday. That exceeded most analysts' forecasts and was driven by a 6 percent jump in food costs, a key worry in a country where poor families spend up to 40 percent of their incomes on food.
A spike in inflation over the past four months is forcing Beijing to divide its focus between boosting growth and preventing overheating. Communist leaders are trying to do that without hiking interest rates, which could slow growth and affect China's trading partners by denting demand for foreign consumer goods and industrial materials.
"There are lots of signs that price pressure is building in the Chinese economy sooner than expected, and that's going to be a concern for the government," said Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates.
Inflation is politically sensitive in China because it can erode economic gains on which the Communist Party bases its claim to power. Premier Wen Jiabao said last week the government hopes to hold overall consumer price rises to 3 percent this year.
China declared itself recovered from the global crisis after growth rebounded to 10.7 percent in the final quarter of 2009. But authorities say stimulus spending and easy credit will continue because the global outlook is still uncertain.
Chinese leaders worry the flood of stimulus money and bank lending is fuelling a dangerous bubble in prices of stocks and real estate. Regulators have tightened controls on bank lending and tried to prevent a surge in credit by ordering institutions to set aside more reserves.
The statistics bureau blamed the latest price jump on bad winter weather that hurt food production and said pressure should ease once spring harvests come in.
"So far there is no overheating in the economy," said a bureau spokesman, Sheng Laiyun, at a news conference. "Although February CPI rose faster than before, it is still mild to moderate."
Still, the data showed February's wholesale inflation accelerating to 5.4 percent, up from January's 4.3 percent, which could lead to more retail price hikes.
Housing price inflation also accelerated in February, with costs in 70 Chinese cities rising by 10.7 percent over a year earlier, up from January's 9.5 percent rate, the government reported earlier.
"Inflation is expected to trend higher in the next several months before peaking around midyear," said Jing Ulrich, JP Morgan's chairwoman for China equities, in a report.
Analysts expect China to raise interest rates this year but say the central bank probably wants to wait until the Federal Reserve boosts US rates, a signal that a global recovery is firmly established. That also could help to avert an influx of speculative foreign money meant to profit from higher Chinese interest rates.
"The Chinese government's tolerance for inflation is actually quite high, so I don't expect these data to spark an immediate change in the policy stance," said Orlik.
http://news.yahoo.com/s/ap/20100311/ap_on_bi_ge/as_china_inflation
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