China's chronically high inflation edged down in December but stayed relatively strong as Beijing tried to stimulate its slowing economy.
Consumer prices overall rose 4.1 percent, down from the previous month's 4.2 percent but still above the year's official 4 percent target, data showed Thursday. Inflation in food costs, which account for up to half of monthly spending for poor families, accelerated to 9.1 percent from November's 8.8 percent.
"Inflation is coming down but not as fast as the government would have liked," said IHS Global Insight analyst Alistair Thornton. "The authorities are constrained in their ability to aggressively loosen monetary policy to revive growth."
Beijing tightened lending and investment curbs through early 2011 to cool an overheated economy and inflation that hit a 37-month high of 6.5 percent in July. But it reversed course late in the year as global demand slumped.
The central bank eased lending curbs in December and promised pro-growth policies for entrepreneurs following a government planning conference last weekend. Private companies that produce most of China's new jobs and wealth were hit hard by the export decline and clampdown on lending, forcing layoffs and raising the threat of unrest.
China's rapid economic growth slowed to 9.1 percent in the three months ending in September from the previous quarter's 9.6 percent. But the drop in export demand prompted fears China's expansion might slow too abruptly.
Industrial indicators show manufacturing and export orders contracted in November and December. China's own imports of oil, iron ore and other goods showed an unexpectedly sharp decline in December to 11.8 percent, barely half the previous monthly's level.
Analysts blame the price surge on strong consumer demand and the flood of money from Beijing's multibillion-dollar stimulus that helped China rebound quickly from the 2008 global economic crisis.
Chinese leaders have to craft their response to the latest slowdown carefully to avoid igniting a new bout of speculation and price rises.
Inflation can be politically explosive for the ruling Communist Party because it erodes the economic gains that underpin its claim to power. The latest price rises stoked frustration among a Chinese public that already is disgusted with rampant official corruption, a yawning gap between rich and poor, pollution and product safety scandals.
The December rise in Chinese food costs was driven by a 21.3 percent jump in the price of pork, the country's staple meat, and a 6.9 percent jump in grain prices.
"An increase in prices in month on month terms, which seems to be due to food prices, will give the government pause before reining in its efforts in keeping consumer prices in check," said Moody's Analytics in a report.
JP Morgan economists said they expect inflation to decline to below 3 percent by mid-2012 and for monetary policy to be "biased towards moderate easing."
Beijing also is likely to inject money into the economy through targeted measures such as tax cuts instead of another huge stimulus, said Jing Ulrich, JP Morgan's chairwoman for China equities.
"We can expect a broad round of cuts in consumption tax across different categories of goods," Ulrich said.
The World Bank and private sector analysts have said China and other developing countries that have seen rapid economic growth in recent years are likely to face a rise in their long-term inflation.
For the full year, the government said China's consumer prices rose 5.4 percent.
"Inflation remained above the targeted 4 percent level every single month of the year," said Thornton. "That is going to remain a problem."
Chinese National Bureau of Statistics (in Chinese):