Consumer prices in
China rose 2.7 per cent in February over the year-earlier period,
according to data released on Thursday, partly attributable to the
Lunar New Year holiday but also to the rising inflationary pressures in
China’s economy.
Other data, on
Thursday, reflected China’s continued strong recovery from the global
economic crisis. For the combined January to February period, which
factors out distortions from the Lunar New Year holidays, industrial
output expanded by 20.7 percent and retail sales rose 18 per cent
compared to a year ago.
Those figures followed data on Wednesday that showed robust growth in both China’s exports and imports in February.
No shift in economic policy
Overall, economists
said the picture suggests no shift in economic policy is in store,
although interest rates on loans are likely to rise as China strives to
hold down inflation.
While inflationary
pressures are clearly building, “current inflation is still modest,”
said Ken Peng, an economist with Citigroup Global Markets in Beijing.
“Right now, we are still okay. This is not going to cause any panic
among policy makers.”
Jinny Yan, an
economist with Standard Chartered Bank in Shanghai, said the data
released this week does not suggest China’s economy is overheating,
despite pockets of speculation, especially in the red-hot property
market.
“We see the recovery continuing to keep its momentum,” she said. “The policy makers will continue to hold their stance.”
Drop in food production
China’s leaders
insist that inflation as firmly in check, below the government’s target
of three percent. The 2.7 per cent increase in February followed a 1.5
percent increase in January. Food prices led the way, a potentially
troublesome sign for the leaders of a country where as much as 40 per
cent of poorer household budgets go to food.
But prices are
typically jacked up during the Chinese New Year holidays, when families
tend to splurge on food and gifts. The National Bureau of Statistics
also blamed the harsh winter, which it said hurt food production.
A spokesman for the
bureau, Sheng Laiyun, predicted prices would come down after the spring
harvests. “We don’t see any signs of economic overheating,” he said.
China’s deputy
central bank governor, Su Ning, told reporters last week: “We believe
we can successfully contain inflationary pressure this year.” He said
the bank was more concerned last year, when prices fell for nine months.
“While we don’t
want to see prices rising too fast, the current situation is necessary
for the development of our economy and cannot be described as
inflation,” he said.
Other data released
on Thursday showed the government’s efforts to rein in loans after last
year’s lending spree, which was designed to spur the economy. Chinese
banks lent only about half as much money in February as they did in
January.
Premier Wen Jiabao
announced that China would lower its lending target for this year to
7.5 trillion renminbi, or $1.1 trillion, about 72 per cent of the 9.6
trillion renminbi in 2009.
The central
government, twice this year, increased the amount of money that banks
are required to deposit with the central bank as a monetary reserve
rather than lend to customers.
Many economists predict one or more interest rate increases in the
coming months, but higher interest rates are unlikely to threaten
China’s economic recovery because growth is governed more by the
availability of loans more than their cost, economists said.
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