March 13 (Bloomberg) -- Chinese inflation is "mild and controllable," Assistant Commerce Minister Fang Aiqing said today after a report this week showed consumer-price growth reached a 16-month high in February.
"There are not only factors helping push up prices this year but also factors curbing price increases," Fang said at a press briefing in Beijing today. Rising international commodity prices are fueling prices as a domestic oversupply of goods eases, he said.
Premier Wen Jiabao this month set a target of holding 2010 inflation to about 3 percent as he pledged to keep monetary policy "moderately loose" to support China's economic recovery. Accelerating inflation, which reached 2.7 percent last month, may force the central bank to raise interest rates in a bid to curb price gains.
The nation's 3 percent consumer-price index target for this year is "in accordance with reality and achievable," Fang said. "In response to price changes, China will implement some measures" to curb inflation, he said, without elaborating.
Last month's increase in the inflation rate exceeded China's one-year deposit rate of 2.25 percent, creating so- called negative real rates and eroding household savings. The People's Bank of China may raise interest rates within the next three weeks, according to Standard Chartered Bank Plc, Nomura Holdings Inc. and Royal Bank of Canada.
The consumer price index may continue to rise in the first quarter, according to a report yesterday by the Financial News, a central bank-published newspaper, citing Assistant Central Banker Guo Qingping. Inflation expectations are getting stronger step-by-step, Guo said in the newspaper.
"There have been price increases in international commodities such as copper, zinc, nickel and oil, which will gradually be imported into China," Fang said today. "As the economy recovers, there is increasing demand for commodities."
Several natural disasters such as snowstorms and droughts also led to higher inflation in February, causing vegetable prices to jump, Fang said. A rally in food prices contributed more than 74 percent to CPI growth, he added.
Economic growth surged to 10.7 percent in the fourth quarter after the government introduced a 4 trillion yuan ($586 billion) stimulus package and scrapped lending caps that fueled a record 9.59 trillion yuan of new bank loans last years.
Even so, inflation isn't the main concern for the economy, said He Keng, vice chairman of the Financial and Economic Committee of the National People's Congress, according to the China Daily. The nation may instead be hit by a "double-dip" economic slowdown if stimulus measures are withdrawn too quickly, the newspaper reported today, citing He.
Several factors, including overcapacity in several industries and bumper harvests of grains, will continue to contribute to suppress the inflation in China, Fang said.