Customers choose vegetables at Fushan market in Nanchang, capital of east China's Jiangxi Province, Feb. 26, 2010. Photo: Xinhua

China's consumer price index (CPI), a main gauge of inflation, rose 2.7 per cent year on year in February, the National Bureau of Statistics (NBS) announced Thursday. The statistics agency also reported that China's industrial output rose 20.7 per cent in the first two months of 2010 compared with the same period in 2008.

Food prices rose 6.2 per cent last month year on year, with non-food prices rising 1 per cent from a year earlier. The level was 1.2 percentage points higher than January's figure, partly due to the Lunar New Year holiday falling in February this year, a time when Chinese spend a lot of money on food, alcohol, cigarettes and gifts.

China's CPI ended nine months of decline in November last year, when it rose 0.6 per cent. In December it rose 1.9 per cent, as freezing weather helped push up food prices. Meanwhile, the producer price index (PPI), a major measure of inflation at the wholesale level, rose 5.4 per cent in February from a year earlier, the NBS also announced Thursday.

The PPI accelerated from 4.3 per cent in January this year, and 1.7 per cent in December 2009, when the figure posted the first monthly rise since December 2008.

The NBS said industrial production in February rose 12.8 per cent from a year earlier.

The Chinese consumer has been held back for too long, and now must be put front and centre in China's growth model, said Anoop Singh, director of the International Monetary Fund's Asia and Pacific Department.

According to an article published (not available online) in Thursday's Straits Times, Singapore's leading English newspaper, Singh said that China has weathered the economic crisis well and the world waits to see if last year's domestic demand growth can be sustained.

Singh said that one key idea to catalyse household consumption in China was to lighten the tax burden on labour.

"Taking into account the personal-income tax and various social contributions, taxation of labor income in China is too high," he said,"China could usefully explore shifting part of the burden from labor toward property, capital gains, and inheritance taxes."

He said China has made important improvements in social-reform program, but noted that "more can be done to speed up the existing reform package, find ways to develop full coverage for catastrophic health events, and develop government-backed financing of tertiary education."

He also stressed the need for improvements in the overall financial system, broadening the range of available savings instruments, and fostering a dynamic service economy.

"If consumption can be successfully and sustainably boosted, I believe that China's development will enter a new era, one in which economic growth continues at a rapid pace, generates higher employment, increases social welfare, places less demand on natural resources, and, ultimately, is of a much higher quality thereby underpinning more balanced global growth," he said.