Page last updated at 09:41 GMT, Thursday, 11 March 2010

Chinese inflation hits 16-month high

Yuan notes
Spending on New Year celebrations may have lifted prices last month

Chinese inflation hit a 16-month high in February, causing economists to call for the government to tighten the economy to prevent overheating.

The annual rate of consumer price inflation rose to 2.7% in February, up from 1.5% in January, and ahead of analysts' expectations of 2.3%.

UBS economist Tao Wang said China may now raise interest rates, which have been on hold since December 2007.

Others said inflation was simply lifted by the New Year celebrations.

We believe it is vital for the government to take more decisive measures to tighten the economy to prevent overheating
Goldman Sachs economists Yu Song and Helen Qiao

Activities to mark the Chinese New Year take place over a number of days, and see a big rise in spending by families across the country.

As the New Year in 2009 fell in January not February, economists say the rate of increase in consumer prices in February 2010 was boosted as it is being compared with weaker spending last year.

'Rate rise soon'

Despite the impact of the Chinese New Year timing, Ms Tao said interest rates were still likely to rise.

"Our forecast is that a rate hike should happen relatively soon, if not this month then probably early in the second quarter," she said.

Goldman Sachs economists Yu Song and Helen Qiao said it was now "vital for the government to take more decisive measures to tighten the economy to prevent overheating".

However, China's National Bureau of Statistics (NBS) reiterated its position that the economy was not expanding too quickly.

"We believe this year's price rises will be mild and controllable," said NBS spokesman Sheng Laiyun.

"Judging from the current situation, investment, consumption and foreign trade are better co-ordinated, so we don't see any signs of economic overheating."

Lending curbs

Despite the NBS's comments, the Chinese government has already moved to prevent the economy growing too fast.

While interest rates may have remained unchanged for more than two years, the central bank has ordered commercial lenders to increase their capital reserves three times since last December.

Such a move effectively limits the amount of money the banks can lend to companies.

On Wednesday, official figures showed that China's exports in February were up 46% from a year ago, which was more than analysts' forecasts.

China's economy grew by 8.7% last year, exceeding government expectations.

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