China's Inflation Rate Eased in January

A spike in China's inflation eased in January, reducing pressure for Beijing to hike interest rates and cool surging prices as it tries to keep a recovery in world's third-largest economy on track., AP 2/11/2010 11:14:00 AM

Consumer prices climbed 1.5 per cent over a year earlier, the National Bureau of Statistics reported. That was down from December's 1.9 per cent rise, the highest rate in nearly two years.

January inflation was driven by a 3.7 per cent rise in politically sensitive food costs, including a 17.1 per cent jump in vegetable prices. But that was down slightly from December's 5 per cent food inflation.

Wholesale inflation in January accelerated to 4.3 per cent, up from December's 1.7 per cent rate, meaning consumers might face further price hikes as retailers pass on higher costs.

The decline suggested Beijing can put off taking drastic steps such as a rate hike that would have global repercussions if it slowed China's recovery and cooled rising Chinese demand for imported industrial raw materials and consumer goods.

Communist leaders worry that last year's stimulus-driven surge in government spending and bank lending might be fueling inflation and a dangerous bubble in real estate and stock prices. Banks were told in January to set aside more reserves in avert a renewed surge in credit but regulators have tried to avoid more drastic measures.

January lending by Chinese banks totalled 1.4 trillion yuan ($200 billion) after credit curbs were imposed mid-month, the central bank reported Thursday. That was nearly one-fifth of the planned total for 2010 but reflected a sharp slowdown after state media said institutions lent 600 billion yuan ($88 billion) in the first week of January alone.

China's biggest lender, state-owned Industrial and Commercial Bank of China Ltd., said this week it will curb lending to real estate and industrial projects. State media say other banks imposed temporary lending moratoriums in January to restrain credit growth.

Also Thursday, the government said housing prices rose 9.5 per cent in January from a year earlier in 70 large and medium-size Chinese cities. That was up 1.3 percentage points from December's housing price rise.