Chinese consumer inflation spurted to a 16-month high in February and a raft of economic data displayed broad-based strength, providing fresh arguments for policy tightening sooner rather than later. The pace of credit growth halved in February, as expected, but some economists said the central bank would probably not wait long before increasing banks' required reserves for a third time this year and perhaps even raising borrowing costs. “We believe more decisive policy tightening measures than those that have been implemented so far ... are needed to prevent the economy from overheating,” Goldman Sachs economists Yu Song and Helen Qiao said in a note to clients. Asian stocks fell more than 0.4 percent as investors priced in a tough policy response, while the main Shanghai stock index surrendered early gains of about 0.6 percent to stand 0.3 percent lower in late morning trade. Consumer price inflation quickened to 2.7 percent in the year to February from 1.5 percent in the year to January, handily beating forecasts of 2.3 percent. Tao Wang, China economist for UBS in Beijing, said the increase largely reflected a low base of comparison in February 2009, when the economy was at its nadir. “It will, though, give the market an expectation of a more imminent rate hike. Our forecast is that a rate hike should happen relatively soon, if not this month then probably early in the second quarter,” she said. Inflation now exceeds the 2.25 percent interest rate on 12-month certificates of deposit, raising the risk for policymakers that savers withdraw their cash from banks and plunge into the already bubbly property market. Pipeline price pressures are also building. Annual factory-gate inflation quickened to 5.4 percent in February from 4.3 percent in January. Economists had forecast 5.2 percent. Factory output beat expectations, expanding 20.7 percent in January and February from year-earlier levels, while retail sales growth of 17.9 percent was just a touch lower than forecast. Both readings marked an acceleration from December.Only urban investment in fixed assets such as roads and factories slowed from a year earlier, when the government was frantically rolling out its 4 trillion yuan ($585 billion) economic stimulus package.
