China Inflation Accelerates Closer to Government’s Target

By Bloomberg News

China’s inflation rebounded more than forecast to a 10-month high in February, approaching the government’s target as a weeklong holiday helped boost prices.

The consumer price index rose 3.2 percent in February from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 3 percent median estimate in a Bloomberg News survey of 35 economists and a 2 percent gain in January. Data in the first two months of the year are distorted by the Lunar New Year holiday, which fell in February this year and January in 2012.

A sustained pickup in inflation would boost the case for monetary tightening after the nation’s new leadership team cements its succession next week at the annual meeting of the legislature in Beijing. Outgoing Premier Wen Jiabao said this week that China is under “considerable inflationary pressure” from land and labor costs and developed countries’ easing.

“Inflation is a policy risk looming large on the horizon,” Liu Li-Gang, chief Greater Chinaeconomist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a note today. Rising wages, environmental costs and economic growth will contribute toward higher prices, Liu said.

Producer prices fell 1.6 percent from a year earlier, the 12th straight decline and the same as January’s drop. That compares with the median estimate for a 1.5 percent fall in a Bloomberg survey of 32 economists.

China’s benchmark Shanghai Composite Index fell 0.2 percent yesterday to finish the week down 1.7 percent after the government intensified a campaign to cool property prices.

Holiday Impact

Consumer-price gains may moderate in March as the impact of the holiday fades and better weather boosts production of agricultural products including vegetables, the statistics bureau said in a separate statement on its website explaining seasonal forces that affected the data.

China set an inflation goal of 3.5 percent for this year, Wen said in his final annual report to the legislature on March 5, lowering the target from last year’s 4 percent. Consumer prices rose 2.6 percent in 2012, less than half 2011’s pace, and analysts surveyed by Bloomberg expect a pickup to 3.1 percent in 2013.

The nation may need to raise interest rates should CPI gains stay at more than 3.5 percent for three months, Chen Dongqi, a senior researcher affiliated with China’s top planning agency, said March 7.

Tightening Bias

Consumer inflation will slow to below 2.5 percent this month, then gradually accelerate to “stay consistently above” 3 percent after mid-2013, said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. The central bank’s monetary policy will probably be biased toward tightening, Zhu said.

Food prices jumped 6 percent in February from a year earlier, slower than the comparable 10.5 percent rise in January 2012. Goldman Sachs Group Inc. said in a March 6 report that the ruling Communist Party’s campaign against corruption and waste may reduce restaurant and food spending enough to lower inflation by close to 1 percentage point, with the caveat that its estimates are “highly uncertain.”

The statistics bureau will release combined January and February figures for industrial production, retail sales and fixed-asset investment at 1:30 p.m. today in Beijing.

Retail Forecast

Factory output in the first two months of the year probably rose 10.6 percent from a year earlier, up from a 10.3 percent pace in December, according to a Bloomberg survey. Retail sales may have increased 15 percent and fixed-asset investment excluding rural areas advanced 20.7 percent, separate surveys showed.

China’s exports exceeded forecasts in February, an indication that improving global demand may help to sustain an economic rebound, a customs administration report showed yesterday. At the same time, imports fell more than estimated.

China’s economic growth accelerated to 7.9 percent in the final three months of 2012 from a year earlier. The pace may pick up to 8.2 percent in the three months through March, according to the median estimate of 23 economists surveyed by Bloomberg News last month.

“Policy makers should be wary of inflation later this year” with the recovery in economic growth, Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in a note today. At the same time, “it’s too early to call for significant monetary tightening at present.”

Two Months

The CPI rose a combined 2.6 percent in January and February from a year earlier, compared with a 3.9 percent gain in the first two months of 2012.

The government last month raised fuel prices for the first time since September to reflect gains in oil benchmarks since the start of the year.

Out of 24 economists surveyed by Bloomberg News in February, 10 forecast an interest-rate increase by the end of the year.

Suning Appliance Co., China’s biggest electronics retailer, posted fast growth in sales in the first two months of the year amid signs of improving consumer demand, Chairman Zhang Jindong said in a March 3 interview.

--Zheng Lifei. With assistance from Liu Li in Beijing. Editors: Scott Lanman, Nerys Avery

To contact the reporter on this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

source

please give me comments thanks