China says January inflation remains high at 4.9%

China said Tuesday that inflation moderated slightly in January but remained stubbornly high at 4.9 percent, and analysts said that meant the government would likely take further steps to cool prices.

The consumer price index, the key gauge of inflation in the world's second economy, was "lower than market expectations" according to the National Bureau of Statistics but still above Beijing's four percent full-year target.

A Dow Jones Newswires poll of 15 economists before the data had resulted in a median forecast of 5.4 percent growth from the same month a year earlier.

The figure, which follows a 4.6 percent increase in December and a two-year high of 5.1 percent in November, comes despite three interest rate hikes in four months and several increases in the amount of money banks must keep in reserve to cut lending.

Brian Jackson, a Hong Kong-based senior strategist at Royal Bank of Canada, said the reading suggested pressure on prices would remain "uncomfortably strong" for the next few months.

"The policy focus will remain on curbing inflation, and we expect to see another 50 basis points of rate hikes and a faster pace of currency appreciation in coming months," he said.

And Li Huiyong, chief economist at Shenyin & Wanguo Securities Co, wrote in a research note: "We expect there will be two more interest rate hikes in the rest of the year, the reserve ratio will be raised to at least 20 percent and the yuan will appreciate around five percent."

Inflation has become Beijing's top economic concern as it struggles to keep a lid on rising costs of food and other key items to head of public unrest.

The continued high prices came despite an adjustment in the index that lowered the weight of soaring food prices.

"Generally, inflationary pressure remains very high," said Yao Wei, a Hong Kong-based China economist with Societe Generale.

"(The data) cannot change the fact that the general economy is overheating and inflationary pressure is high."

A separate statement on the statistics bureau's website said the weightings are tweaked annually.

Despite the change, food costs continued to show strong growth in January, with grain prices up 15.1 percent, the bureau said.

An elderly woman pushes her shopping along a street in Beijing

The grain supply situation has become an increasing source of official anxiety as a drought across northern China over the past four months has raised fears that the important winter wheat crop could be severely affected.

At the same time, prices of fresh fruit grew 34.8 percent, the bureau said.

Inflation, particularly related to food, has a history of sparking unrest in China.

Tuesday's data did not include real estate prices, which also have grown sharply over the past year.

The statistics bureau said the food price weighting was lowered by more than two percentage points.

Yao said that brings food's weighting to less than 30 percent. The weighting of living costs such as utilities was raised by about four percentage points, bringing it near 20 percent, she said.

AFP

Other news