China's February Inflation Accelerates

This picture taken Wednesday Feb. 10, 2010 shows a Chinese selects fruits at a department store in...

This picture taken Wednesday Feb. 10, 2010 shows a Chinese selects fruits at a department store in Beijing, China. China's inflation spiked higher in February, adding to pressure on Beijing to prevent overheating and keep the recovery in the world's third-largest economy on track. (AP Photo/Vincent Thian)

(AP)

China's inflation rose in February amid galloping growth and demand for scarce labor, increasing pressure on Beijing to ease off its stimulus while keeping a recovery going in the world's third-largest economy.

Consumer prices rose 2.7 percent in February over a year earlier, up from January's 1.5 percent rate, the government reported Thursday. That exceeded most forecasts and came near the government's official ceiling of 3 percent inflation for the year.

The price rise is too small to trigger an immediate interest rate rise or change in government policy, analysts said. But Beijing has been winding down its stimulus by reducing bank lending, and analysts said it faces growing pressure to prevent overheating with its first rate hike since the global crisis hit.

"We could have overheating" if the economy is allowed to grow too fast, said UBS economist Tao Wang. "So all these measures about lending controls and rate hikes are to engineer a soft landing."

Any steps that slow China's growth could have repercussions for its trading partners if that erodes demand for imports. But Wang and others said that even if Beijing tightens credit, it should have little effect on trade because its target of 8 percent growth this year is strong enough to drive demand for imports.

China's imports jumped 44.7 percent in February from a year earlier and other governments are looking to it to help drive global demand. The country is a major buyer of iron ore from Australia and Brazil and industrial components from Taiwan and other Asian economies.

Beijing declared China recovered from the global crisis after growth rebounded to 10.7 percent in the final quarter of 2009 on the strength of a huge stimulus. But communist leaders say stimulus spending and easy credit will continue because the export outlook is uncertain and a revival in domestic demand is not firmly established.

In an illustration of price pressures from China's surging growth, the American Chamber of Commerce in Southern China said Thursday its member companies are paying more for labor as they compete for scarce workers.