Chinese consumer price inflation jumped to a 16-month high in February, while a raft of economic data displayed broad strength.
The pace of credit growth halved in February, as expected, but some economists said the country's central bank would probably not wait long before increasing banks' required reserves for a third time this year and perhaps even raising interest rates.
Inflation quickened to 2.7% in the year to February from 1.5% in the year to January. The Chinese government wants to limit inflation for the whole year to 3%.
Sheng Laiyun, the spokesman for the National Bureau of Statistics, said inflation would remain 'mild and controllable' and blamed February's rise on holiday spending and bad weather, which pushed up the price of food.
Su Ning, a deputy central bank governor, also cited the Lunar New Year effect and said China was not yet experiencing inflationary pressure.
Annual factory gate inflation also quickened to 5.4% in February from 4.3% in January.
Separate figures showed that factory output exceeded expectations, expanding 20.7% in January and February from year-earlier levels, while retail sales growth of 17.9% was just a touch lower than forecast. Both readings marked an acceleration from December.
The statistics office produces a combined figure for the first two months to iron out distortions due to timing of the Lunar New Year holiday, which varies from year to year.
Economists attribute the underlying strength of the Chinese economy above all to the ready availability of cheap credit. Although loan growth halved in February to 700 billion yuan, the total was still high given that it was a holiday-shortened month.
While many economists believe a major monetary tightening by the authorities is imminent, others argue that the government remains wary of the fragility of the global recovery, despite strong export data released on Wednesday, and is already slowing its infrastructure spending.
Banks have been ordered to scale back lending and rules tightened to deter speculative property buying.
