China’s inflation and industrial production exceeded forecasts in February, underscoring the challenge for Premier Wen Jiabao as he seeks to prevent price increases from stirring social unrest.
Consumer prices rose at an annual 4.9 per cent pace in February and output increased 14 per cent in the first two months of 2011, the statistics bureau said in Beijing. Producer prices jumped 7.2 per cent last month, the most since September 2008.
Today’s reports signalled the central bank’s monetary tightening has been insufficient so far to contain prices, in an echo of pressures across Asia that spurred South Korea, Thailand and Vietnam to raise interest rates this week. People’s Bank of China (PBOC) Governor Zhou Xiaochuan said today interest rates will be used to curb inflation, and played down the role of currency gains, which US officials have encouraged China to use.
“Inflation risk is very high as oil prices and food costs are rising, and wages have increased substantially,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia. A PBOC rate increase as early as this month can’t be ruled out, said Shen, who formerly worked at the International Monetary Fund and the European Central Bank.
Stocks slide
The Shanghai Composite Index closed 0.8 per cent lower because of the inflation numbers and an earthquake that rocked northern Japan.
Today’s economic data contrast with diminishing inflation pressures indicated yesterday in China’s monthly trade report, which showed an unexpected deficit of $7.3 billion in February. The excess of imports over exports helped channel money out of an economy awash with cash after a record 17.5 trillion yuan ($2.7 trillion) of lending over 2009 and 2010.
The pace of China’s inflation was unchanged from January and compared with the 4.8 per cent median forecast in a Bloomberg News survey of 22 economists. The government aims to limit full- year consumer-price gains to about 4 per cent.
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Fixed-asset investment grew 25 per cent in the first two months of 2011 from a year earlier, the data showed. Retail sales rose a less-than-forecast 16 per cent in January and February combined. Industrial output rose 15 per cent last month from a year earlier.
Bank of America-Merrill Lynch forecasts March inflation of 5.5 per cent. In February, food costs rose 11 per cent from a year earlier. Non-food prices rose 2.3 per cent.
New Year effect
China’s economic figures are distorted in the first two months of each year by a weeklong holiday to celebrate the Lunar New Year, the dates of which shift. The customs bureau yesterday cited the event as a factor in the February trade deficit, which was the widest in seven years.
The climb in crude oil costs past $100 a barrel threatens to further cloud the economic outlook, along with Europe’s sovereign crisis and doubts about the strength of the US recovery. Stocks tumbled around the world yesterday after China reported weaker exports.