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China Focus: Inflation Hits 10-Month High in Feb
Mar 11,2013 08:59CST
industry news
Due to rising food prices during the Spring Festival season, China's annual consumer inflation rebounded to a 10-month high of 3.2 percent in February.

BEIJING, March 11 -- Due to rising food prices during the Spring Festival season, China's annual consumer inflation rebounded to a 10-month high of 3.2 percent in February, according to data released by the National Bureau of Statistics (NBS) on Saturday.

On a month-on-month basis, February's consumer price index (CPI) gained 1.1 percent from the previous month, according to an NBS statement.

Food prices, which account for nearly one-third of the weighting in China's CPI, remained a key driver of inflation in February, as the Spring Festival season, which fell within that month, pushed up demand.

The statement said food prices jumped 6 percent last month from the same period last year, pushing the CPI up by 1.98 percentage points.

Taking the holiday effect and the increase in fuel prices in February into account, the rebound is largely in line with market expectations.

Yu Qiumei, a senior statistician with the bureau, forecast that CPI growth will ease this month as the holiday effect fades and warmer weather starts to bolster food supplies.

But inflationary pressures will remain in the long term as China's economic recovery gains traction, analysts said.

In Tuesday's government report, Premier Wen Jiabao said China aims to hold this year's consumer price growth at around 3.5 percent, lower than the 4-percent target for 2012 but higher than last year's actual inflation rate of 2.6 percent.

Wen named upward pressures on the prices of land, labor, agricultural products and services, as well as imported inflationary pressure, as challenges in achieving that goal.

Saturday's data show that housing rents went up 2.7 percent year on year in February, and on a month-on-month basis, costs have climbed 0.5 percent, the highest monthly gain since July last year.

Wang Yuwen, a researcher with Bank of Communications, warned that China's new property curbs, which impose a capital gains tax of 20 percent on home transactions, may further drive up housing costs this year.

Meanwhile, China's planned reforms in the resources pricing system may lift oil and natural gas prices, creating inflationary pressures in the long term, Wang said.

To complicate matters, the recent quantitative easing implemented in the United States, Europe and Japan, together with rising momentum in the Chinese economy, have combined to fuel concerns over possible imported inflation.

In January, Chinese financial institutions saw their yuan funds outstanding for foreign exchange increase by 683.7 billion yuan (108.9 billion U.S. dollars), the highest monthly increase on record, data from the central bank show.

To drain liquidity in the market, China's central bank resumed the issuance of repurchase agreements last month.

"We believe the central bank will continue to rely on open market operations to adjust liquidity before moving to raise banks' reserve requirement ratios (RRR) or interest rates," said Liu Ligang, an economist at ANZ National Bank Ltd.

He said inflation concerns would narrow the scope for more monetary easing to boost the economy, which has gained traction since the fourth quarter last year on the back of China's loosening policies to stimulate investment.

On Tuesday, Wen reiterated in his work report that China will maintain a proactive fiscal policy and a prudent monetary policy in 2013 to hit its economic growth target of 7.5 percent.

The central government expects China's broad money supply (M2) to expand by 13 percent in 2013, 0.8 percentage point lower than the actual increase last year.


China food price

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