CHINA'S economy continued its stable growth in April but inflationary pressure is looming large, with consumer prices growing at their fastest pace in 18 months.
Analysts said more tightening measures, such as higher interest rates and reserve-ratio requirements, should appear on the policy menu in coming months.
The Consumer Price Index, the main gauge of inflation, climbed 2.8 percent from a year earlier last month, the highest since November, 2008, the National Bureau of Statistics said yesterday.
Meanwhile, property prices across the country's 70 big and medium cities rose 12.8 percent on an annual basis in April, while new yuan lending amounted to 774 billion yuan (US$113.36 billion), both more than market forecasts and fueling inflationary expectations.
"China's economy is managing a stable recovery from the global financial crisis," said Li Maoyu, an analyst at the Changjiang Securities Co. "The major task now is to prevent overheating and curb inflation."
However, the threat of an overheated economy appears to be waning.
In April, China's industrial production expanded 17.8 percent year on year, down 0.3 percentage point compared with the March growth.
Urban fixed-asset investment increased 26.1 percent to 4.7 trillion yuan in the first four months, 4.4 percentage points less than a year earlier and 0.3 percentage point down from the rate for the first quarter.
"Chinese authorities' various measures to curb excessive credit expansion have begun to show some impact, while the overall economy continued with a steady pace of growth," the J.P. Morgan said in a research note.
"Momentum in private-sector demand, both domestic and external, remained solid in April."
China's exports increased 30.5 percent from a year earlier last month, while imports advanced 49.7 percent, bolstered by revived demand from both home and abroad.
Retail sales gained 18.5 percent to 1.15 trillion yuan in April, accelerating from the rise of 18 percent a month earlier, the national statistic bureau said.
Although the economic outlook seemed quite rosy, it would be challenging to curb inflation, which had grown above the benchmark one-year deposit rate of 2.25 percent for three consecutive months, said Sun Lijian, a finance professor at Fudan University.
The Producer Price Index, the factory-gate measurement of inflation, surged to a 19-month high of 6.8 percent in April.
This probably means the CPI will continue to accelerate in coming months as higher production costs would eventually be translated into consumer prices, according to Sun.
To reduce inflation risks, China earlier this month demanded that banks set aside more money as reserves, the third increase in a year.
But the central bank has thus far seemed reluctant to increase interest rates over widespread concerns that this decision may reverse the economic recovery and attract speculative funds.
Despite this, some analysts believe at least one interest rate increase is imminent.
"We expect the central bank to raise interest rates by 0.27 percent no later than June to prevent the real deposit rate from becoming too negative," said Sun Mingchun, an economist at the Nomura International (Hong Kong) Ltd.
"In addition, we anticipate another 0.5-percent increase in the reserve ratio given that the economyis slightly overheated," Sun said.