China on Tuesday reported lower than expected consumer inflation in January, but pressure remains for the government to control inflation as the situation is complicated by ongoing drought and high global commodity prices.
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A customer chooses vegetables at a supermarket store in Jinan, capital of east China's Shandong Province, Feb. 15, 2011. The National Bureau of Statistics announced on Tuesday that China's Consumer Price Index (CPI), a key gauge of inflation, rose by 4.9 percent in January
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The consumer price index (CPI), the main gauge of inflation, rose 4.9 percent in January year on year due to surging food prices, the National Bureau of Statistics (NBS) announced Tuesday.
The figure is 0.3 percentage points higher than that of December, and is 0.2 percentage points lower than the 28-month high in November.
Although the figure is lower than market expectations of above 5 percent, inflation remains a daunting problem complicated by ongoing winter drought in the country's north, migrant worker wage increases and global commodity price hikes.
"The extremely cold weather and the Spring Festival holiday spending pushed prices up 1 percent from a month ago," NBS said in a question and answer statement on its website.
The producer price index (PPI), the main gauge of inflation at the wholesale level, rose 6.6 percent in January year on year.
Food prices, which in the past accounted for a third of the basket of goods in China's CPI calculation, surged 10.3 percent year on year.
The price of grain rose 15.1 percent year on year, and that of eggs was up 20.2 percent. Fresh vegetables advanced 2 percent, while fruit was up 34.8 percent.
Prices are expected to continue climbing as the cold wintery weather continues, JP Morgan Chase, the investment bank, said in its 2011 China Economic Outlook.
Besides, drought plaguing north China's wheat-growing areas also added to inflation concerns as reduced wheat output would likely affect prices.
The NBS also announced Tuesday it had reduced the weighting of food prices on the CPI by 2.21 percentage points and had increased that of living costs by 4.22 percentage points after the nation's home prices skyrocketed.
The statistics agency said the adjustment added 0.024 percentage points to January's figure, denying media reports of a drag-down of 0.3 percentage points.
The NBS said it regularly adjusts the composition of the CPI basket.
China also faces mounting pressure from imported inflation. The customs authority reported more than a 50 percent rise of imports in January, which is largely boosted by commodity price hikes. That would push the CPI figure up in the coming months, said Gao Li, an analyst with Huachuang Securities.
To mop up excess liquidity and curb inflation, the central bank has increased interest rates three times since October, and hiked the banks' reserve requirement ratio seven times since the start of last year.
Despite an array of factors pushing inflation up, the government should be able to keep prices under control, said Ba Shusong, a researcher with the Development Research Center of the State Council.
He said prices are usually high during the Spring Festival holiday. But after that, government measures will take hold and prices will stabilize.
China has set its inflation target at around 4 percent this year.
Lu Ting, an economist with the Bank of America-Merrill Lynch, expected a moderate decline in CPI in February. The next rate hike will be after March, and the next bank reserve requirement ratio hike will take place after February, he said.