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Friday, Jan 11, 2013 5:15 AM UTC

China’s inflation jumps to 6-month high

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Topics: From the Wires,

BEIJING (AP) — China’s inflation spiked to a six-month high in December after a freezing winter pushed up vegetable prices, possibly complicating efforts to sustain a shaky economic recovery.

Consumer prices rose 2.5 percent over a year earlier, up from November’s 2 percent and the fastest rise since June, the National Bureau of Statistics reported.

That was driven by a 14.8 percent jump in vegetable prices after the coldest winter in seven years led to smaller harvests. Prices in some areas rose as much as 40.8 percent.

Higher inflation could hamper Beijing’s ability to support China’s recovery with interest rate cuts or other moves for fear of igniting a politically dangerous price spiral. Consumer prices are especially sensitive in a society where the poorest families spend up to half their monthly incomes on food.

“Rebounding price pressures mean tighter monetary policy ahead,” said Credit Agricole CIB economist Dariusz Kowalczyk in a report.

Parts of southern China have been hit by freezing rain and snow that caused widespread crop damage.

On Thursday, the government sent 40,000 quilts, 40,000 winter coats and other supplies to four southern regions, the official Xinhua News Agency reported. It said authorities have relocated 4,470 people due to cold weather.

Forecasters expect about 7.5 percent growth this year after 2012′s estimated 8 percent expansion. But analysts warn China still could face a danger of a “hard landing” with much lower growth if trade slumps or the country suffers a financial shock from a decline in housing prices or weak investment.

China’s trade growth rebounded strongly in December but analysts warn it will be hard to sustain that momentum due to weak demand in key U.S. and European markets.

Bank lending, an indicator of investment sentiment, rose 15 percent in the second half of last year but growth slowed in December, the government reported this week. Last month’s lending was down 13 percent from November.

“Stronger growth in China is being reflected in rising imports. But with credit growth leveling off, a strong and sustained economic rebound does not seem likely,” said Mark Williams of Capital Economics in a report.

Weak trade means China has to rely on domestic consumption that is growing more slowly than authorities want and a flood of government-led investment.

The communist government spent 2010-11 tightening economic controls to crush inflation fueled by stimulus spending and bank lending following the 2008 crisis. Authorities eased some controls in late 2011 after exporters were battered by a plunge in global demand but have avoided a repeat of their huge stimulus.

More By Joe Mcdonald.

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