China’s inflation rate hit a 10-month high in February after Lunar New Year festivities drove up food prices.
Consumer prices rose 3.2% from a year earlier, with food prices up by 6%.
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.
“We expect limited market and policy impact as investors and officials understand the Lunar New Year distortions quite well,” Bank of America Merrill Lynch analysts said in a note after the data was released over the weekend.
“Though policymakers should be wary of inflation later this year with economic growth recovery, it’s too early to call for significant monetary tightening at present,” they said.
After years of experiencing a blistering pace of growth, China has seen its economic expansion slow in recent times.
China’s inflation rate hit a 10-month high in February after Lunar New Year festivities drove up food prices
In 2012, China 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 $150 billion.
Some analysts said that if China continues to pursue easy monetary policies, consumer prices may rise further in the latter half of the year.
“If monetary policy remains at the current loose stance, consumer price index in 2013 will likely be much higher than the 3.5% target set in the National People’s Congress,” said Zhang Zhiwei, an economist with Nomura.
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, labor, agricultural products and services,” Wen Jiabao said.
“And major countries are stepping up loose monetary policy, so we can’t overlook imported inflationary pressures.”
The European Central Bank (ECB) has announced it reduces its key interest rate from 1% to 0.75%, a record low for the eurozone.
The move comes as the eurozone economy continues to be weak.
The ECB also cut its deposit rate, from 0.25% to zero.
A cut in the ECB’s deposit rate is designed to stimulate lending between banks, as funds placed with commercial banks overnight are currently receiving 0.3% in interest.
Surveys released earlier this week indicated that the eurozone’s service sector had continued to shrink in June and that business confidence had fallen.
The ECB’s president, Mario Draghi said the eurozone was likely to show little or no growth in the second quarter of the year, but should recover somewhat by the end of the year.
The European Central Bank reduces its key interest rate from 1 percent to 0.75 percent, a record low for the eurozone
Mario Draghi, said the eurozone economy faced risks, but that inflation did not appear to be a threat: “Inflation rate pressure…has been dampened. At the same time, economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment.”
At a media conference following the announcement of the decision he was asked it the situation was as bad as in 2008, to which he replied: “Definitiely not. We are not there at all.”
The rate cuts come despite an inflation rate running above the 2% target for the single-currency zone.
But the rate has been sliding recently and is expected to fall to an average of 1.6% next year.
An interest rate below inflation is meant to discourage saving and promote investment, as the interest rate does not keep pace with inflation, meaning the value of the money on deposit is eroded.
The interest rate cut is the third since Mario Draghi became ECB president late last year.
Mario Draghi said the decision on rates was unanimous.