First increase in CPI since August but analysts remain upbeat over economy

The Consumer Price Index, a key inflation measure, rose to 2 percent in November from a year ago, the National Bureau of Statistics said on Sunday.

It is the first increase in the index since August. In October, the annual inflation rate stood at 1.7 percent, the lowest in 33 months.

Alocal resident buys fruits at a market in Yinchuan, the capital of Northwest China's Ningxia Hui autonomous region, Dec 5, 2012. [Photo/Xinhua]

A rise in investment and industrial growth led to the increase, analysts said.

GDP growth is expected to be around 8 percent year-on-year in the fourth quarter, up from a 14-quarter low of 7.4 percent between July and September.

Analysts also expect the new leadership to focus on maintaining the momentum next year and keep GDP growth at around 8 percent.

A batch of data was released by the bureau on Sunday and analysts expressed optimism at the state of the economy.

November industrial output grew 10.1 percent year-on-year, from 9.6 percent in October and 9.2 percent in September, the bureau said.

Investment in fixed assets recorded annual growth of 20.7 percent.

Real estate investment showed a marked rebound, registering 16.7 percent in the first 11 months, compared with 15.4 percent for the first 10 months.

Retail sales of consumer goods grew 14.9 percent, up from 14.5 percent in October.

"Things are starting to look up," said Qu Hongbin, the chief China economist at HSBC.

Qu predicted that GDP growth will reach 8.6 percent year-on-year in 2013, even though global demand will probably remain sluggish.

But it is likely that the government will keep its GDP growth target of 7.5 percent at the Central Economic Work Conference, the annual high-level strategic planning session for the economy scheduled for mid-December, Qu said.

Lu Ting, chief economist of Bank of America Merrill Lynch's Greater China division, forecast that GDP growth in the fourth quarter will be 7.8 percent.

"Growth is expected to rise to 8.3 percent in the first six months of 2013," Lu said, while it may be "slightly slower" in the second half.

Food prices, which account for about 30 percent of the CPI, went up 3 percent year-on-year, with vegetable prices jumping 11.3 percent.

Lian Ping, chief economist with the Bank of Communication, said that December and first-quarter inflation can be higher.

China's PPI, a gauge of inflation of production materials, dropped 2.2 percent in November from a year earlier, marking the ninth straight month of decline and showing the lingering risk of an industrial slowdown.

Qu said that even though inflation is rising, it will be on a more modest scale than in 2009.

"With a benign inflationary outlook, we expect the central bank to keep interest rates unchanged in 2013 as growth bottoms out," he said.

Liu Ligang, the chief China economist with Australia and New Zealand Banking Group, forecast China's whole-year inflation to be around 2.7 percent in 2012, much lower than the government's target of 4 percent.

But the government needs to act cautiously in 2013 because infrastructure projects have been accelerating since May and may lead inflation to go up to a dangerous level in the second half of the year, Liu said.

"I believe that the policy makers will make due preparations for dealing with that situation at the coming Central Economic Work Conference," he said.

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