China inflation rises to 2.5 % in December

China's inflation increased more than forecast to a seven-month high as the coldest winter in 28 years gripped the nation, pushing up vegetable prices, which might limit room for easing to support an economic recovery according to experts.

The consumer price index was up 2.5 per cent in December from a year earlier, according to the National Bureau of Statistics.

Chinese stocks dropped in the biggest decline in eight weeks on concern that the increased pace of inflation made further policy loosening less likely. Exports and credit growth data pointed to the strength of the economic rebound. Chen Yulu, a central bank academic adviser, said 8 January that price gains might become a concern in the second half.

China's benchmark stock guage, the Shanghai Composite Index down 1.3 per cent in the afternoon today. The yuan strengthened beyond 6.22 against the dollar for the first time in 19 years.

Food prices were up 4.2 per cent in December from a year earlier according to the data. Vegetable prices rose 14.8 per cent from a year earlier and contributing 57.5 per cent to the total 0.8 per cent month-on-month gain in the CPI, the bureau said.

Pressure on food costs might ease following the holiday, it said in a statement. On a month-on-month basis, December's CPI rose 0.8 per cent from the previous month.

According to Wang Jun, an expert with the China Center for International Economic Exchanges, the country would face greater inflationary pressures in 2013 than in 2012.

Pork prices would head into a new upward cycle this year according to Wang. He added, inflation was likely to rise in the coming months, due to rising food prices, higher labour and land costs, quantitative easing in the industrial world and stabilising domestic economic growth.