China’s central bank signaled concern that inflation risks will increase and said that monetary easing by nations, including the U.S. and Japan, may push up commodity prices and make global capital flows more volatile.

China must be alert to changes in price-gain expectations and to imported inflation, the People’s Bank of China said yesterday in its fourth-quarter monetary policy report. The costs of labor-intensive products, services and agricultural goods may rise persistently on slowing labor-supply growth, the PBOC said.

“An economic recovery and demand expansion may pass into CPI in a relatively fast manner,” the central bank said.

Chinese officials are trying to sustain a rebound in growth without spurring a pickup in consumer or home prices as the Communist Party completes a once-a-decade power handover. Expansion in gross domestic product accelerated in the final three months of last year for the first time in two years.

“The central bank is signaling that room for further monetary easing is quite limited,” said Chang Jian, a Hong Kong-based economist at Barclays Plc who formerly worked for the World Bank. “But it will remain flexible to accommodate the expected crackdown on shadow banking and stricter regulation of local government financing to produce a liquidity situation that is supportive of growth.”

The Shanghai Composite Index, the nation’s benchmark stock gauge, dropped 1.3 percent at the 11:30 a.m. local-time break, headed for the first decline in nine days.

Easing Pause

The central bank has refrained from easing monetary policy since July, after two interest-rate cuts and three reductions in the reserve-requirement ratio for lenders, on concern that any loosening may fuel inflation and drive up property prices.

The PBOC injected a record 860 billion yuan ($138 billion) into the financial system using reverse-repurchase agreements this week to meet rising demand for cash before a weeklong holiday starts.

The statistics bureau may report a 2 percent inflation rate for January, a pace distorted by the timing of a Lunar New Year holiday, according to the median estimate in a Bloomberg News survey of analysts. The data are due tomorrow. In December, the figure was 2.5 percent.

Monetary easing in major economies including the U.S. and Japan “may make global capital flows more volatile, push up commodity prices and generate a greater spillover effect on emerging economies,” the central bank said in the report, echoing comments made by PBOC Deputy Governor Yi Gang.

Growth Momentum

On the domestic outlook, the central bank said growth momentum in the world’s second-biggest economy is “relatively strong.”

“With the help of macro-economic policies, the country is expected to keep stable and relatively fast growth,” it said. The PBOC reiterated it will maintain a “prudent” monetary policy as it sees forces that may drive up inflation, according to the report yesterday on its website.

The report shows the central bank is “very vigilant” about inflation risks against a backdrop of a growth recovery and the “flood of global liquidity,” said Sun Junwei, a Beijing-based economist with HSBC Holdings Plc.

The central bank also said it will use home-loan policies to curb speculative real-estate purchases, while encouraging moderate growth in credit and financing. It will support the use of the yuan in cross-border trade and investment and broaden channels for inflows and outflows of the currency, according to the report.

A government survey showed last week that manufacturing expanded in January for a fourth month.

Bloomberg