MercoPress. South Atlantic News Agency

In Olympic year China's inflation seems set for a record

China's consumer prices index jumped in February to an 11-year high of 8.7%, presenting Beijing's leaders with a big economic headache in the run-up to the Olympic Games. Twelve months inflation in January was 7.1% and economists had expected a February figure in the range of 8 percent.

The National Bureau of Statistics blamed the increase largely on fierce winter weather and seasonal price rises due to the Lunar New Year holiday, which helped lift food prices by 23.2% in February from a year earlier. The annual rate of nonfood inflation remained contained at 1.6%, up just a touch from 1.5% in January. Leaving aside food and energy, the core inflation rate was 1% in February, in line with the trend seen since the second half of 2007, the bureau said. But analysts believe the surge in the headline rate to the highest level since May 1996 would reinforce popular fears of ever-rising prices and make it more difficult for the central bank to reverse inflationary expectations. Officials also recall Tia mien rioting in 1989/1990 triggered mainly because of soaring food prices. "It's true that both the severe winter and Lunar New Year had an impact on the increase, but after so many months of big rises I'm afraid now the risks are high that China will see more broad-based inflation," said Chen Jijun, an analyst at Citic Securities in Beijing. "Though nonfood inflation is only 1.6%, it has been accelerating. I think the possibility for price rises to spread from food to other sectors is growing," he added. Economists said the latest data could mean that this year's first interest rate raise could be closer than expected. Bank deposit rates now yield less than half the inflation rate.