Stubborn China inflation sticks at 4.9%

Inflationary pressures in China persisted in February, with consumer prices rising 4.9 per cent from a year earlier and producer prices rising 7.2 per cent, the fastest increase since October 2008.
Politically sensitive food prices, which have a disproportionate impact on low-income households, accelerated to 11 per cent in February from a year earlier, up from 10.3 per cent in January.
Inflationary pressures in China persisted in February, with consumer prices rising 4.9 per cent from a year earlier and producer prices rising 7.2 per cent, the fastest increase since October 2008.
Politically sensitive food prices, which have a disproportionate impact on low-income households, accelerated to 11 per cent in February from a year earlier, up from 10.3
per cent in January.

But China’s central bank governor expressed confidence that Beijing would be able to rein in prices and keep the annual consumer inflation rate below the government’s target of 4 per cent for the whole year.
“We have many effective tools to deal with inflation at our disposal, including interest rates,” Zhou Xiaochuan, governor of the People’s Bank of China said at a news conference during China’s annual parliamentary session. “Although the [consumer price index] figures for December, January and February are high, inflationary expectations are relatively stable at present.”
He said appreciation of the Rmb would not play a big role in the central bank’s efforts to control inflation and China will maintain a “stable” exchange rate, a reference to the central bank’s regular interventions in the market to avoid faster appreciation.
Mr Zhou also cautioned that February’s inflation figure was likely distorted by the effect of the Chinese New Year holiday last month, which typically leads to higher prices, especially for food.
One major area of concern for China’s leaders will be data that show real estate fixed asset investment accelerated in the first two months of the year, despite expectations that government measures to clamp down on the sector would slow property construction.
For the two months real estate construction increased 35 per cent from the same period a year earlier, higher than the 33 per cent for all of 2010 and a big jump from December’s year-on-year growth of 24 per cent.
Last year’s growth in construction was already much higher than the historical average in China and has led to concerns that overbuilding could lead to a serious correction in the property market which would have a ripple effect across China’s economy.
The government’s statistics bureau publicly revealed for the first time on Friday that its fixed asset investment figures do not include low-income housing investment.
The government has announced plans to spend $197bn to build 10m units of low-income housing this year, even as a huge wave of newly constructed residential property starts to come onto the market.
“Most developers are still optimistic about market outlook, and a significant surge in housing supply is coming,” said Du Jinsong, an analyst at Credit Suisse. “We believe this data shows that oversupply situation may become even more severe.”