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China's CPI rise stokes inflation fears

2010-03-12 09:39 BJT

BEIJING, Mar. 12 -- A key gauge of inflation rose by a stronger-than-expected 2.7 percent year-on-year in February from 1.5 percent in January - the fastest clip in 15 months - adding pressure on the government to tighten policies.

Business is brisk at a farm produce market in Nanjing, Jiangsu province, on Thursday. Food prices were the driving force behind February's CPI increase.(Source: China Daily/DUO DUO)
Business is brisk at a farm produce market in Nanjing, Jiangsu province, on Thursday.
 Food prices were the driving force behind February's CPI increase.(Source: China 
Daily/DUO DUO)

Given the 2.25 percent one-year interest rate on deposits, the consumer price index (CPI) growth means the real interest rate has returned to negative for the first time since 2008, raising the possibility of an interest rate hike.

The CPI rise was mainly caused by food price increases during Spring Festival. Prices rose by 6.2 percent, compared to 1 percent for non-food prices, the National Bureau of Statistics (NBS) said on Thursday.

Severe weather conditions also drove up food prices, said Sheng Laiyun, NBS spokesman.

Analysts said that given the Spring Festival effect, policymakers should not hasten to tighten policies.

"Only after key figures for March come out should we discuss about a possible rate hike," said Dong Xian'an, chief macroeconomic analyst of Industrial Securities.

Sheng predicted that March CPI will ease as the government takes additional measures to control prices to keep the rate below the government-set 3 percent target.