China growth eases, inflation hits 32-month high

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BEIJING, April 15 (AFP): China said Friday that its economy slowed slightly in the first quarter of 2011 -- but inflation hit a 32-month high, suggesting Beijing's efforts to rein in soaring costs are still falling short. Gross domestic product in the world's second-largest economy expanded 9.7 per cent year on year in the first three months of the year, the National Bureau of Statistics said, fuelling market expectations for more tightening measures. The figure beat Dow Jones Newswires' estimate of 9.5 per cent but was lower than the 9.8 per cent growth rate posted in the final quarter of 2010. "The national economy maintained steady and fast development and had a very good beginning (to the year)," NBS spokesman Sheng Laiyun said. The data weighed on Asian markets but Shanghai edged up 0.26 per cent by the end of the day on bargain buying and Hong Kong closed flat, while Tokyo slipped 0.65 per cent. The politically sensitive consumer price index rose 5.4 per cent year-on-year in March -- the fastest pace since July 2008 and well above the government's 2011 target of four per cent -- and 5.0 per cent in the first quarter. That was more than twice as fast as the 2.2 per cent rate recorded in the first three months of 2010. Keeping inflation at 5.0 per cent was "no easy job", said Sheng, as food prices surged 11 per cent in the first quarter and housing costs rose 6.5 per cent. Inflation hit 4.9 per cent in February. Sheng said China "must persist in managing inflation expectations" but noted prices fell 0.2 per cent in March from February, which was a "good sign". However, analysts said the government had more work to do, with further interest rate hikes and tighter bank lending restrictions likely in the coming months. "The Chinese economy is not slowing as planned or desired. Inflation remains stubbornly high," said Alistair Thornton, an analyst at IHS Global Insight. Lu Ting, an economist at Bank of America-Merrill Lynch, said prices normally fell more than 0.2 per cent following the Chinese New Year holiday. "That?s why policymakers are a bit nervous about inflation pressures and they raised (the) tone on inflation fighting this week," said Lu. Premier Wen Jiabao vowed last weekend to ramp up efforts against rising costs, and an industry association Wednesday ordered businesses not to raise prices and heed Beijing's call to stabilise costs to help tame inflation. Top leaders, ever fearful of inflation's historical potential to trigger social unrest in the country of more than 1.3 billion people, have been struggling to rein in food and property costs. Prices have remained high despite four interest rate hikes since October and numerous increases in the bank reserve requirement ratio, which effectively limits the amount of money banks can lend. The cost of products at the factory gate also rose 7.3 per cent year-on-year in March, up from 7.2 per cent in February, the NBS said, as global commodity prices soar following the disasters in Japan and conflict in oil-rich Libya.