China inflation jumps to 32-month high

City A.M. Reporter
China's turbo-charged growth eased just a touch in the first quarter, while its inflation jumped to a 32-month high, putting pressure on the government to do more to rein in prices and keep the economy on an even keel.

China's gross domestic product increased by 9.7 per cent in the first quarter from a year earlier, down from 9.8 percent in the final three months of 2010 but ahead of an expected 9.5 percent pace.

Consumer price inflation sped to 5.4 per cent in the year to March, the fastest since July 2008 and topping market forecasts for a 5.2 per cent increase.

Taken together, the data published by the National Bureau of Statistics on Friday showed that the world's second-largest economy was still sizzling, little hindered by the central bank's half-year tightening campaign that many investors had feared would undermine growth.

They were also another reminder of the yawning gap that has opened up between China, the world's fastest-growing major economy, and developed nations from United States to Europe that are still struggling to kick-start their economies after the global financial crisis.

"The figures show that (China's) inflation pressure will not taper off in the short term and we expect the consumer inflation to remain high in the second quarter," said Sun Miaoling, an economist with CICC, the largest Chinese investment bank.

"The government will keep battling inflation as its priority in coming months, which could prompt the central bank to further tighten its monetary policies," she added.

The People's Bank of China has increased benchmark interest rates four times since last October and has required the country's big banks to lock up a record high of 20.0 percent of their deposits as reserves.

Global markets registered little impact from the Chinese data, in large part because the numbers had been comprehensively leaked in the days prior to the official release.

The main Chinese stock index in Shanghai was down 0.5 per cent after morning trading and share prices throughout Asia were also slightly softer, with investors braced for Beijing's next round of tightening. Many analysts believe the central bank could increase required reserves again as soon as this weekend.