Inflation accelerates above official yearly target

AFP - China said Friday that consumer prices surpassed its official target in May while factory output and investment slowed, complicating government efforts to maintain steady economic growth.
  
New loans issued by Chinese banks also eased in May, suggesting Beijing's moves to prevent the world's third-largest economy overheating were starting to work, but analysts expressed concern about growing inflationary pressures.
  
The consumer price index, the main gauge of inflation, rose a surprising 3.1 percent in May compared with the same month last year, the National Bureau of Statistics said.
  
The increase outpaced the 2.8 percent rise in prices in April and overtook the government's own inflation target of 3.0 percent for the year, potentially increasing pressure on policymakers to hike interest rates.
  
"We have a foundation for price increases to be controlled at around three percent this year. The pressure is rather big but the target can still be realised with continued efforts," NBS spokesman Sheng Laiyun told reporters.
  
Sheng said a low base from last year and higher food and housing costs were to blame, adding that the price pressures could ease later in the year.
  
Stagflation -- a damaging combination of slow economic growth and rising prices -- was not a concern as the economy was still "growing at a relatively fast pace", Sheng added.
  
Analysts had expected consumer prices to increase 3.0 percent in May, according to Dow Jones Newswires.
  
Producer prices, a gauge of prices at the factory and farm gate, rose a faster-than-expected 7.1 percent in May and 5.9 percent over January-May.
  
Despite rising prices, Beijing was likely to delay a move on interest rates until later this year to gauge the impact of recent policy tightening moves and the European debt crisis, said Brian Jackson, a senior analyst at Royal Bank of Canada in Hong Kong.
  
"Beijing would like to delay tightening policy until it gets a clearer read of the property market and the fallout from euro-area weakness, but this strategy is risky given the near-term outlook for inflation," he said.
  
Amid growing signs China's economy was slowing, policymakers would not make a "knee-jerk" response to rising prices, said Bank of America-Merrill Lynch chief economist Lu Ting.
  
China has kept interest rates on hold, preferring more targeted measures to curb property speculation and clamp down on bank lending, which have fanned inflation in the economy.
  
The measures appear to be working. Property prices slowed in May from April while banks issued 639.4 billion yuan (93.6 billion dollars) in new loans in May, down from the previous month, official data showed.
  
New yuan lending in May was less than the 774 billion yuan in loans extended in April.
  
"China’s May data confirmed a modest slowing in growth," said Ben Simpfendorfer, a China economist at Royal Bank of Scotland in Hong Kong.
  
Urban fixed asset investment, a measure of government spending on infrastructure and a key driver of the economy, rose 25.9 percent in the January to May period, down from 26.1 percent in the first four months of 2010.
  
Industrial output from the country's millions of factories and workshops rose 16.5 percent in May, slower than the 17.8 percent increase in April, while retail sales accelerated to 18.7 percent for the month, the NBS said.
  
Worries that the economy could be hit hard by the European debt crisis eased after data released Thursday showed exports soared 48.5 percent year-on-year in May on strong foreign demand for Chinese-made products.