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January 22, 2010

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Economic data fuel fears of inflation

CHINA'S economic figures released yesterday highlighted rapid price increases, fueling inflationary expectations, analysts said.

"The surge in consumer prices and producer prices last month beat our forecasts," said Tao Dong, an analyst of Credit Suisse.

The country's Consumer Price Index, the main gauge of inflation, rose 1.9 percent in December from a year earlier, up from the gain of 0.6 percent in November.

The Producer Price Index, the factory-gate measurement of inflation, also ended a 12-month losing streak by rising 1.7 percent in December, the National Bureau of Statistics said yesterday.

The rise in consumer prices last month was driven by increases in food and utility prices, and the worst snow storms in history in many areas made the situation worse.

The sharp rise in producer prices, which fell 2.1 percent in November, was boosted by continuing public infrastructure investment.

"The inflation trend is likely to continue," Tao said. "The extraordinarily strong lending seen in 2009 and rapid increase in property prices are believed to have raised the inflation expectations of the public."

It has led to growing anticipation of a tightening policy stance, and analysts are divided on whether China will soon increase its benchmark interest rate.

Ma Jiantang, head of the bureau, said yesterday that the government should properly manage people's inflationary expectations and economic growth will be bolstered by steady investment and consumption this year.

China's retail sales surged 17.5 percent in December, extending its momentum. For last year the rate stood at 15.5 percent.

The country's subsidies for buyers of energy-efficient cars raised vehicle sales by 32.3 percent last year from a year earlier, while the sales of furniture jumped 35.5 percent due to robust domestic demand.


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