China February Consumer Prices Rise 4.9%, Exceeding Target

China February Inflation Is 4.9%, More Than Forecast

A woman pays for vegetables at a market in Anhui province, China. Photographer: Qilai Shen/Bloomberg

China February Inflation Is 4.9%, More Than Forecast

A woman sells vegetables at a market in Anhui province, China. Photographer: Qilai Shen/Bloomberg

China February Inflation Is 4.9%, More Than Forecast

A butcher cuts meat at a produce market in Beijing. Photographer: Keith Bedford/Bloomberg

China February Inflation Is 4.9%, More Than Forecast

A woman eats a bowl of dumplings at a night market in Anhui province, China. Photographer: Qilai Shen/Bloomberg

China’s inflation and industrial production exceeded forecasts in February, underscoring the challenge for Premier Wen Jiabao as he seeks to prevent price increases from stirring social unrest.

Consumer prices rose at an annual 4.9 percent pace in February and output increased 14 percent in the first two months of 2011, the statistics bureau said in Beijing. Producer prices jumped 7.2 percent last month, the most since September 2008.

Today’s reports signaled the central bank’s monetary tightening has been insufficient so far to contain prices, in an echo of pressures across Asia that spurred South Korea, Thailand andVietnam to raise interest rates this week. People’s Bank of China Governor Zhou Xiaochuan said today interest rates will be used to curb inflation, and played down the role of currency gains, which U.S. officials have encouraged China to use.

“Inflation risk is very high as oil prices and food costs are rising, and wages have increased substantially,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. A PBOC rate increase as early as this month can’t be ruled out, said Shen, who formerly worked at the International Monetary Fund and the European Central Bank.

Stocks, Yuan

The Shanghai Composite Index fell 0.3 percent as of the 11:30 a.m. local time break in trading. Non-deliverable yuan forwards slumped 0.6 percent this week to 6.4415 per dollar as of 11:58 a.m. in Hong Kong, indicating the currency may gain 2 percent in the next 12 months.

Today’s figures contrast with diminishing inflation pressures indicated yesterday in China’s monthly trade report, which showed an unexpected deficit of $7.3 billion in February. The excess of imports over exports helped channel money out of an economy awash with cash after a record 17.5 trillion yuan ($2.7 trillion) of lending over 2009 and 2010.

The pace of China’s inflation was unchanged from January and compared with the 4.8 percent median forecast in a Bloomberg News survey of 22 economists.

Fixed-asset investment grew 25 percent in the first two months of 2011 from a year earlier, the data showed. Retail sales rose a less-than-forecast 16 percent in January and February combined. Industrial output rose 15 percent last month from a year earlier.

Bank of America-Merrill Lynch forecasts March inflation of 5.5 percent. In February, food costs rose 11 percent from a year earlier. Non-food prices rose 2.3 percent.

New Year Effect

China’s economic figures are distorted in the first two months of each year by a weeklong holiday to celebrate the Lunar New Year, the dates of which shift. The customs bureau yesterday cited the event as a factor in the February trade deficit, which was the widest in seven years.

The climb in crude oil costs past $100 a barrel threatens to further cloud the economic outlook, along with Europe’s sovereign crisis and doubts about the strength of the U.S. recovery. Stocks tumbled around the world yesterday after China reported weaker exports, U.S. jobless claims rose and Moody’s Investors Service cut Spain’s debt rating.

The People’s Bank of China raised interest rates last month for the third time since mid-October, pushing the one-year lending rate to 6.06 percent. The government has also ratcheted up banks’ reserve requirements and sold bills to soak up cash.

Zhou said today in an annual news conference in Beijing that liquidity will be tighter this year than last year, when banks extended 7.95 trillion yuan of loans.

Congress Meeting

Wen, who will close the annual meeting of the National People’s Congress with a press conference on March 14, has set reining in inflation as the nation’s top economic priority this year. On March 5, he told the lawmakers that price gains, including “exorbitant” increases in house costs in some cities, have the potential to undermine social stability.

The government has deployed hundreds of police in Beijing and Shanghai after Internet calls for protests, inspired by revolts in the Middle East and North Africa.

--Sophie Leung, Zhang Dingmin, Zheng Lifei. With assistance from Jay Wang, Judy Chen, Baizhen Chua and Nerys Avery. Editors: Paul Panckhurst, Chris Anstey

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To contact the editor responsible for this story: Paul Panckhurst in Hong Kong