Chinese inflation topped expectations in February at 4.9% and looks set to climb further in coming months, adding to pressure for another dose of monetary tightening.
But data published this morning also offered tentative signs that the government was making some headway in taming price rises without inflicting undue harm on growth in the world's second-largest economy.
Consumer inflation steadied in February at the same level as in January, the National Bureau of Statistics said. Although above forecasts for 4.7%, the 4.9% rate contrasted with dire warnings a few months ago of runaway prices. Core inflation, stripped of volatile food costs, slowed.
Though far too soon for China to declare victory in its battle against inflation, the stabilisation suggested that it was more than midway through a sustained tightening campaign launched nearly half a year ago.
People's Bank of China Governor Zhou Xiaochuan struck a guardedly optimistic note. 'If we observe the CPI (consumer price index) figures for December, January and February, although they are high, inflationary expectations are currently relatively stable,' he said at a news conference during China's annual session of parliament.
Meanwhile, China's industrial output in the first two months of 2011 rose 14.1% from the same period a year earlier, picking up from a 13.5% pace in December and ahead of market expectations for a 13.3% increase. Investment was also robust, up 24.9% year-on-year in the first two months.
The broad strength reflected Beijing's balancing act in managing the economy this year. While restricting the flow of cash with monetary policy, the government is once again spending lavishly on infrastructure projects and, especially, the construction of public housing to keep growth humming along.
China's top leaders have declared that their priority this year is to control inflation. So far, complaints about rising prices have amounted to little more than grumbles, but serious inflation has sparked social unrest in China in the past.
To meet the official goal of keeping inflation to a 4 percent average this year, the government has raised interest rates three times and banks' reserve requirements five times since October, while also using a series of direct controls to cap price rises.
