HONG KONG (MarketWatch) — China's consumer inflation accelerated in March to its fastest rate in almost three years, slightly ahead of expectations, while other data showed the pace of economic growth little changed, signalling China has scope for further policy tightening to help curb price gains.
The consumer price index rose 5.4% in March from a year earlier, up from February's 4.9% rise, compared to expectations of 5.3% and 5.2% in surveys by Dow Jones Newswires and Reuters, respectively. "Whispered" numbers reported by local news media had indicated CPI increase of between 5.3% and 5.4%.
The CPI rise was the fastest since July 2008.
Wholesale prices were up 7.4% for the month from a year earlier, matching analyst forecasts compiled by Dow Jones,and just ahead of a 7.2% projection from the Reuters survey.
More of a worry for Chinese policy makers, food prices were up 11.7% in March from a year earlier, while non-food prices were up a more modest 2.7%. The CPI figures and component data were released by the Bureau of Statistics.
Can China bust inflation without stifling growth?
Amid growing worries over inflation in China, many question what the People's Bank of China can do to put on the brakes without dampening rapid economic growth.
China's gross domestic product in the first quarter expanded 9.7%, easing slightly from 9.8% in the prior quarter, but ahead of expectations of 9.5% growth in both the Dow Jones and Reuters surveys.
Signs that economic growth was holding up — in spite of four interest-rate hikes by the People's Bank of China since policy eased due to the global financial crisis — would likely give authorities confidence to further tighten policy.
"Our overall assessment is that economic growth is stable and robust, but inflation pressure is elevated (though definitely not out of control)," said Bank of America-Merrill Lynch economists in Hong Kong, in a note released following Friday's data.
They added that China's CPI looks set to peak at between 5.5% and 6% in June.
Other analysts were less upbeat, warning bolder action was need to bring inflation under control.
The People's Bank of China is "behind the curve with its gradualist approach and ... needs to get more aggressive," wrote Brown Brothers Harriman's New York-based analysts after the data release.
The analysts said China is still in the early innings in its rate-hiking cycle, having nudged the main interest rate up by one percentage point and banks' reserve requirement ratio by 4.5 percentage points, compared to tightening of 1.89 points and 10 points, respectively, during the previous cycle.
However, if it had been solely up to the People's Bank of China, it's likely an anti-inflation policy would have been rolled out sooner and been more aggressive, The Wall Street Journal reported on Friday, citing unnamed sources.
Interest-rate policy in China is subject to influence of competing bureaucracies, secret committees and the Communist Party, which maintains a pervasive but hidden influence, the report said. See WSJ.com report on Chinese policy making.
Hong Kong and Shanghai stocks traded in positive territory after the data was released but later fell back, sending both indexes into negative territory in the afternoon. The Hang Seng Index (HK:HANGSENG 24,008.07, -5.93, -0.02%) fell 0.4% to 23,929.3, and the Shanghai Composite Index (CN:SHCOMP 3,050.53, +7.89, +0.26%) eased 0.5% to 3,026.4.
The T.D. Securities analysts said the correct prediction contained in this and other whispered numbers reported on Thursday would add gravitas to the unofficial releases in the future. See MarketWatch report on whispered numbers for Chinese data results.
