MercoPress. South Atlantic News Agency

China’s February inflation and exports with positive messages for the economy

However food prices continue a very sensitive issue

China's inflation rate hit a 10-month high in February, as Lunar New Year festivities drove up food prices. Consumer prices rose 3.2% from a year earlier, with food prices up by 6%. Likewise exports rose more than expected in February, probably indicating that the Chinese economy could be in an upturn.

Inflation has been a hot political issue in China. There have been concerns that if consumer prices rise too much, it may prompt Beijing to tighten monetary policies, which in turn may hurt China's growth.

However, analysts said the latest data was unlikely to prompt any such moves. They argued that the price growth was driven mainly by the Lunar New Year celebrations, which are traditionally associated with an increase in consumer spending.

After years of experiencing a blistering pace of growth, China has seen its economic expansion slow in recent times. In 2012, the country grew at a pace of 7.8%, its weakest performance in 13 years.

Prompted by slowing growth, China has taken various steps over the past months to spur a fresh wave of economic growth. It cut interest rates twice last year, to bring down the cost of borrowing for consumers and businesses. It also lowered the amount of money that banks need to keep in reserves in an attempt to boost lending in the country.

On the investment front, Beijing approved infrastructure projects worth more than 150bn dollars. Some analysts said that if China continues to pursue easy monetary policies, consumer prices may rise further in the latter half of the year.

China set a target of 3.5% inflation rate for the current year at the National People's Congress, its annual parliamentary session last week. However, in his final appearance at the congress, outgoing Premier Wen Jiabao warned that keeping prices in check will remain a key challenge for the policymakers.

“There are relatively big inflationary pressures this year, mainly because there are pressures on China's land, labour, agricultural products and services,” he said. “And major countries are stepping up loose monetary policy, so we can't overlook imported inflationary pressures”

Likewise Chinese exports rose more than expected in February, adding to optimism over a recovery in its economy. Shipments jumped 21.8% from a year earlier, boosted by strong demand from the US and South East Asia. Most analysts had expected a 15% rise.

Exports, which are a key driver of China's growth, have been hurt recently by a slowdown in its key markets. Analysts said the data may be skewed due to the Lunar New Year, but added that the trend was that of a recovery.

However, there was a big fall in imports, which declined 15.2% from a year earlier. Analysts said that the Lunar New Year celebrations, during which factories and businesses in China are shut for days, played a key role in that decline.

Last year, the Lunar New Year was celebrated in January, while this year it was observed in February. This meant that factories operated for fewer days in February this year than in 2012.

”Since the factories worked for a [lower] number of days, they imported far less raw materials than they would normally have done,“ said Dariusz Kowalczyk, senior economist with Credit Agricole CIB in Hong Kong.

”That is why you have to combine the data for January and February to see the real picture”. Mr Kowalczyk said that the combined data for the two months indicated a jump of 5.1% in imports from a year earlier.