China's inflation accelerates

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China's inflation rose in February amid galloping growth and demand for scarce labor, increasing pressure on Beijing to ease off its stimulus while keeping a recovery going in the world's third-largest economy.

Consumer prices rose 2.7 per cent in February over a year earlier, up from January's 1.5 per cent rate, the government reported Thursday.

That exceeded most forecasts and came near the government's official ceiling of 3 per cent inflation for the year.

The price rise is too small to trigger an immediate interest rate rise or change in government policy, analysts said.

But Beijing has been winding down its stimulus by reducing bank lending, and analysts said it faces growing pressure to prevent overheating with its first rate hike since the global crisis hit.

"We could have overheating" if the economy is allowed to grow too fast, said UBS economist Tao Wang.

"So all these measures about lending controls and rate hikes are to engineer a soft landing."

Any steps that slow China's growth could have repercussions for its trading partners if that erodes demand for imports. But Wang and others said that even if Beijing tightens credit, it should have little effect on trade because its target of 8 per cent growth this year is strong enough to drive demand for imports.

China's imports jumped 44.7 per cent in February from a year earlier and other governments are looking to it to help drive global demand.

The country is a major buyer of iron ore from Australia and Brazil and industrial components from Taiwan and other Asian economies.

Beijing declared China recovered from the global crisis after growth rebounded to 10.7 per cent in the final quarter of 2009 on the strength of a huge stimulus. But communist leaders say stimulus spending and easy credit will continue because the export outlook is uncertain and a revival in domestic demand is not firmly established.

In an illustration of price pressures from China's surging growth, the American Chamber of Commerce in Southern China said Thursday its member companies are paying more for labor as they compete for scarce workers.

"Many of our companies are facing severe difficulty with employees not returning" after last month's Lunar New Year holiday, said chamber president Harley Seyedin.

"People are also demanding higher wages."

The government blamed the latest price jump on snowstorms that hurt food production and said pressure should ease once spring harvests come in.

"So far there is no overheating in the economy," said Sheng Laiyun, a spokesman for the National Bureau of Statistics, at a news conference. "Although February CPI rose faster than before, it is still mild to moderate."

Still, the data showed February's wholesale inflation accelerating to 5.4 per cent, up from January's 4.3 per cent, which could lead to more retail price hikes.

Chinese leaders worry the flood of stimulus money and bank lending is fueling a dangerous bubble in prices of stocks and real estate. Housing price inflation also accelerated in February, with costs in 70 Chinese cities rising by 10.7 per cent over a year earlier, up from January's 9.5 per cent rate.

As Beijing winds down its stimulus, the central bank said Thursday that February bank lending fell to 700 billion yuan ($102 billion), down by half from January's level after credit controls were tightened in mid-January.

"The government now faces a difficult choice: maintain the pro-growth policy bias and risk inflation pushing past its target, or make decisive moves toward tightening policy and risk choking off the recovery," said Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates, in a report.

- AP