Robust China growth pushes up prices
Jane Cai in Beijing and Paggie Leung
The mainland economy grew robustly in the first quarter but drove consumer price inflation to almost a three-year high, increasing the chances of further tightening measures to keep price growth in check.
Gross domestic product for the first three months of the year was up 9.7 per cent from a year ago, the National Bureau of Statistics said yesterday. Consumer inflation reached 5.4 per cent in March, a 32-month high and up from 4.9 per cent for the first two months of this year.
Sheng Laiyun, a spokesman for the bureau, said there was no stagflation - when inflation is high and economic growth is low - in the economy, though 'steady and fast growth' had been maintained since the second half of last year.
Economists had widely expected the data to show the economy moderating from the 9.8 per cent annualised growth recorded in the fourth quarter, with some forecasting a slowdown would relieve pressure on policymakers to take further tightening measures in coming months. But yesterday's numbers dashed those expectations.
'Economic growth is stable and inflation pressure is rising. Such a combination suggests that policymakers should maintain their hawkish tones over the next few months,' said Sun Mingchun, an economist at Japanese brokerage Daiwa Securities. 'We expect a further 50 basis point rise in the required reserve ratio in April or May, possibly as soon as this weekend.'
The central bank has raised interest rates four times and bank reserve requirements six times since the middle of October. Premier Wen Jiabao said at a cabinet meeting on Wednesday that the government would do whatever it could to curb inflation, the top priority this year.
During the first quarter, consumption contributed 5.9 percentage points to economic growth and capital formation added 4.3 points, while a trade deficit pulled it down by 0.5 percentage point, according to the bureau.
In March, industrial output rose a higher than expected 14.8 per cent from a year earlier. Fixed-asset investment climbed 25 per cent in the first quarter, with real estate investment growth accelerating to 34 per cent despite measures aimed at cooling the market. Retail sales rebounded from 15.8 per cent for the first two months to 17.4 per cent in March, thanks to strong sales of vehicles, furniture and household appliances.
After factoring in the effect of price rises, real retail growth of 11.3 per cent for the first quarter showed demand growth was slowing from 17.3 per cent in the fourth quarter, said Peng Wensheng, an economist with China International Capital Corp.
In March, both the food and non-food consumer price indices were higher, at 11.7 per cent year on year and 2.7 per cent respectively. Services CPI inflation rose to 4.2 per cent, indicating some wage-driven inflation pressure, and the March producer price index grew 7.3 per cent. CPI rose 5 per cent in the first quarter, challenging the official aim of pegging consumer inflation below 4 per cent this year.
Qu Hongbin, an economist with HSBC, expects Beijing to increase the bank reserve ratio by another 100 basis points and interest rates by another 25 basis points this quarter, on top of supply-side measures including raising farming subsidies and property cooling efforts.