Inflation in China accelerated for the first time in six months in January, a report from the National Bureau of Statistics showed Thursday. The surprise spike was triggered by higher spending during the Lunar new years holidays.

Inflation rose to a three-month high of 4.5 percent year-on-year in January from the 4.1 percent in the previous month. Economists expected a slowdown to 4 percent.

Food inflation accelerated to 10.5 percent from 9.1 percent in December. Non-food prices were up 1.8 percent. Meanwhile, house prices increased at a slower pace of 1.9 percent year-on-year.

Costs of transportation and communication rose 0.2 percent year-on-year. Fuel prices are a major headwind to consumer prices. The National Development and Reform Commission said yesterday that it is hiking the retail prices of gasoline and diesel, amid mounting pressure on the country's refineries, due to high operation costs caused by increasing international crude oil futures prices.

The producer price index rose 0.7 percent annually in January, with the rate of increase easing from previous month's 1.7 percent. This was forecast to rise 0.8 percent.

After aggressive policy tightening last year, the People's bank of China put a break on the rate-hike cycle as the prolonged European debt crisis started to bite Chinese exports. In December, the central bank slashed the banks' reserve requirements by half a percentage point for the first time in three years to stimulate growth.

Though there were widespread expectations for a interest rate cut before the Chinese new year, the central bank held off further policy easing. Meanwhile, the latest data has narrowed the scope for more stimulus.

The Chinese economy expanded at the slowest pace in more than two years in the fourth quarter of 2011 as a result of sluggish external demand and Beijing's past policy tightening to contain inflation and property prices.

RTTNews