Economy

China inflation rises as housing, food costs jump

(Agencies)
Updated: 2010-05-11 13:50

BEIJING - China's inflation accelerated in April and housing prices rose at a record pace, but analysts said Beijing is likely to avoid an immediate interest hike that might slow the recovery of the world's third-largest economy.

April consumer prices rose 2.8 percent from a year earlier, below Beijing's full-year target of 3 percent but up 0.4 percentage points from March, the National Bureau of Statistics said Tuesday. Food prices jumped 5.9 percent, up from March's 5.2 percent rate.

"Growth in the consumer price index is still mild compared with our economic recovery and inflation in other countries," said a bureau spokesman, Sheng Laiyun. "But we are facing big inflation pressures in the short term."

Foreign companies and investors are watching Chinese inflation because any government moves to cool prices might slow economic growth. That could hurt the global recovery if it weakens demand for foreign iron ore and other imports.

"Overall, we don't see this as threatening yet for the economy," said Standard Chartered economist Jinny Yan. She said inflation is likely to rise further, possibly hitting a peak of 4 percent in June, but Beijing is unlikely to hike rates while the global outlook is uncertain amid Europe's debt crisis.

"Recent events should rule out an imminent rate hike," she said. "What they will do is observe external markets for a while longer before deciding what to do."

China's economic growth accelerated to 11.9 percent in the first quarter, driven by Beijing's 4 trillion yuan ($586 billion) stimulus.

The government worries about a surge in housing and other asset prices and is trying to use lending curbs to prevent a dangerous bubble while avoiding an across-the-board rate hike that might slow growth.

Despite those controls, the statistics bureau said Tuesday that housing costs in 70 Chinese cities rose by a record 12.8 percent in April over a year earlier. Analysts say it may take several months for the effect of government controls to show.

Also in April, lending by Chinese banks rose to 774 billion yuan, up from March's 510.7 billion yuan, the central bank reported Tuesday.

Wholesale prices climbed 6.8 percent in April from a year earlier, a 0.9 percent increase over March's rise. That can lead to higher consumer prices down the line as retailers pass on higher costs.

Inflation was driven by cold weather that hurt the spring harvest and high prices for fuel and imported commodities, said Sheng, the statistics bureau spokesman. He said the biggest rises in April food costs were 14.9 percent for vegetables and 16.4 percent for fruit.

Other data Tuesday showed China's economic recovery is still on track.

April retail sales rose 18.5 percent from a year earlier, up 0.5 percent from March's growth rate, while industrial output increased by 18.8 percent. Investment in factories and other fixed assets rose 26.1 percent in the January-to-April period over a year earlier.

"High growth and low inflation in the first half of the year looks set to segue rapidly into lower growth and higher inflation in the second half," said Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates, in a report. "But there is little in today's data release to force a change in the government's policy agenda."