But data published on Friday 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 percent, the 4.9 percent reading contrasted with dire warnings a few months ago of runaway prices. Core inflation, stripped of volatile food costs, slowed.
Though far too soon for Beijing to declare victory in its battle against inflation, the stabilization 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.
Nevertheless, worries that further increases of Chinese interest rates and reserve requirements were inevitable — and potentially imminent — weighed on global markets, which were already reeling because of weak US economic data and unrest in Saudi Arabia. Asian equities added a touch to losses on the day, and the Shanghai stock market had dipped 0.2 percent as of 0515 GMT.
“Clearly, the consumer price index is stabilising, but the risk is still significantly on the upside,” said Wei Yao, economist with Societe Generale in Hong Kong. “It means the central bank will probably stay on the course of tightening,” she added.
Industrial output in the first two months of 2011 rose 14.1 percent year-on-year, picking up from a 13.5 percent pace in December and vaulting past market expectations of a 13.3 percent increase.
Investment was also robust, up 24.9 percent year-on-year in the first two months, topping forecasts for a 23.3 percent rise.
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.
The next round of tightening may be just around the corner.
“The higher-than-expected CPI may push the government to raise interest rates or the reserve requirement ratio in March,” said Liu Dongliang, analyst with China Merchants Bank in Shenzhen.
Reflecting the surge in global commodity costs earlier this year, producer price inflation jumped in February to 7.2 percent from 6.6 percent a month earlier.
The most important part of Beijing’s tightening efforts has been reining in banks, which unleashed a torrent of credit over the past two years, swamping the economy in cash.
Reports in official media have said that new loans in February were slightly above 500 billion yuan ($76 billion), a steep drop from January and considerably less than expected. If confirmed, that would suggest that China has finally gained traction in controlling the excesses of banks.
In a statement on Friday, the Chinese central bank said it would ensure that there is an “appropriate” amount of liquidity in the economy this year, guiding credit growth at a reasonable pace.
Zhou, the central bank governor, poured cold water on the suggestion that faster currency appreciation would help China control inflation. At the margins, it would be useful, but China is a continent-sized economy and so the exchange rate plays a more minor role than in small, open economies, he said.
For all the signs of progress in taming inflation, it is notoriously difficult to interpret Chinese economic data at the start of the year. Many businesses shut their doors or run at half speed for weeks because of the Lunar New Year, which fell in early February this year.
A reminder of the distortions this causes came on Thursday, when data showed that China had recorded its largest trade deficit in seven years in February. That helped fuel a sell-off in global markets, but economists said the country was likely to return to a chunky surplus over the rest of the year.
