The consumer price index (CPI), the main gauge of inflation, rose 2.4 per cent year on year in March, down 0.7 per cent month on month. The CPI growth outcome for the first quarter was 2.2 per cent, well below the government's ceiling of 3 per cent for the year, according to data released by the National Bureau of Statistics (NBS) yesterday.

'The momentum of national economic recovery has further expanded, which has laid a good foundation for reaching the targets set for the whole year,' statistics bureau spokesman Li Xiaochao told reporters in Beijing.

He said the relatively strong growth was partly the result of a low comparison base for the same period last year, and partly because 'the current economic situation is still extremely complex and we still face many problems in the process of recovery'.

Qian Wang, chief China economist with JPMorgan Chase Bank, said the strong economic expansion in the first quarter had been helped by solid investment and private consumption growth.

Tao Wang, chief economist with UBS Securities, said inflationary pressure remained. 'The government kept bank lending under control in the first quarter, which should help contain inflation growth this year,' UBS's Wang said. 'But housing prices continued to rise rapidly despite recent measures.'

Latest data show property prices in 70 cities surged 11.7 per cent in March from a year earlier, the fastest since records began in 2005.

'Property prices have been rising too fast, so we expect a new round of tightening policies to curb property prices,' said Lu Ting, an economist with Bank of America - Merrill Lynch.

The producer price index (PPI), a major measure of inflation at the wholesale level, rose 5.9 per cent in March from a year earlier. China's PPI rose 5.2 per cent year-on-year in the first quarter, the NBS said.

The data suggested Chinese leaders are succeeding in their effort to keep stimulus-fuelled growth. But analysts said it also increases pressure on Beijing to raise interest rates and loosen controls on its currency.

'Growth is running too hot and it requires policy tightening,' said Ben Simpfendorfer, chief economist with the Royal Bank of Scotland in Hong Kong. He called yesterday's data 'a dangerous mix' because the low inflation reading would delay a rise in borrowing costs.

Alaistair Chan, an economist with Moody's Analytics, said the GDP data could result in further international pressure for the yuan to appreciate.

UBS's Wang said she believed there would be 'more policy initiatives on rate hikes and a resumption of yuan appreciation this quarter.' But Wang of JPMorgan Chase Bank said she believed there is still no consensus among policymakers regarding interest rate hikes.

NBS spokesman Li said the government would maintain pro-stimulus policies but it would be more flexible and targeted.

Li said that investment accounted for 57.9 per cent of GDP and consumption 52 per cent.

Simpfendorfe said GDP year-ago growth rates will slow in the second half, as base effects ease. 'But after such a strong start to the year, the 2010 GDP forecast is revised upwards to 11 per cent from 10 per cent,' he added.

JP Morgan, CLSA, CICC and Citi were among banks that promptly raised their growth forecasts for 2010, a year in which China will almost certainly overtake Japan to become the second-largest economy behind the United States. China's gross domestic product last year was US$4.9 trillion (HK$38 trillion), just behind Japan's US$5.1 trillion. Tokyo has yet to report first-quarter figures.

In addition to quarterly GDP and prices indexes, the NBS released a batch of other figures that showed strong growth in the economy. Retail sales, the main gauge of domestic consumption, rose 17.9 per cent year-on-year to 3.6374 trillion yuan, up 2.9 per centage points on the same period last year.