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China's inflation rebounds to 10-month high

Source : IANS
Last Updated: Sat, Mar 09, 2013 12:08 hrs
To match Analysis CHINA-ECONOMY/CURRENCY

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) Saturday.

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

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

Considering the holiday effect and the increase of fuel prices in February, the rebound is largely in line with market expectations.

However, the upward trend is unlikely to continue as the holiday effect fades and warmer weather starts to bolster food supplies, said Yu Qiumei, a senior statistician with the bureau, suggesting CPI growth will ease this month.

In Tuesday's government work 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, labour, agricultural products and services, as well as imported inflationary pressure resulting from easy monetary policies in major developed countries, as challenges in achieving the goal.

The concerns came as quantitative easing implemented in the US, Europe and Japan, together with rising momentum in the Chinese economy, have combined to fuel concern over a new round of speculative capital inflow to China.

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

To drain liquidity in the market, the central bank Thursday resumed the issuance of repurchase agreements, which analysts have interpreted as a sign of a prudent monetary policy.

"We believe the central bank will continue to conduct open market operations to drain liquidity, and to some extent, the bank has already begun to tighten monetary policies," said Liu Ligang, an economist at ANZ National Bank Ltd.

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.



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