China’s annual consumer inflation rebounded to a 10 month high of 3.2 per cent in February fuelled by 6 per cent rise in food prices.
On a month-on-month basis, February’s Consumer Price Index (CPI), main gauge of inflation gained 1.1 per cent from the previous month, according to data released by the National Bureau of Statistics (NBS) on Saturday.
Food prices, which account for nearly one-third of the weight 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, a report by the state run Xinhua news agency said.
NBS said food prices jumped 6 per cent 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 per cent, lower than the 4 per cent target for 2012 but higher than last year’s actual inflation rate of 2.6 per cent.
Wang Yuwen, a researcher with Bank of Communications, warned that China’s new property curbs, which impose a capital gains tax of 20 per cent 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), 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.