China's economy grew 10.6 percent in the first quarter, slowing only slightly amid gloom about the global economy, but inflation stayed above 8 percent despite efforts to ease food shortages, the government reported Wednesday.
The strong expansion was likely to fuel hopes that rising spending by China's companies and consumers can help to drive world growth as the United States slows. Beijing said growth in the world's fourth-largest economy was driven in part by a 21.5 percent jump in retail spending in March.
"Todays data confirm the growing strength of the Chinese consumer generating domestic economic growth," said Moody's Economy.com economist Matt Robinson in a report to clients.
But the inflation figures were a setback for communist leaders who have made a national priority of taming a price spike that is battering Chinese consumers. The price spike that began in mid-2007 has been blamed on shortages of pork, grain and other key food items.
Consumer prices rose 8.3 percent in March over the same month last year, down only slightly from February's 8.7 percent, the highest rate in nearly 12 years, the National Bureau of Statistics reported.
Most of the price gains came from a 21 percent jump in food costs, including pork and vegetables.
"Consumer price inflation this year is still running at a high level," said Li Xiaochao, a bureau spokesman, at a news conference.
The government must do more to raise production of pork and grain, Li said. Beijing also will "adopt sound fiscal policies and tight monetary policies," he said. "It will create a favorable environment for curbing inflation."
Communist authorities worry about a possible public backlash if prices keep rising rapidly. Bouts of high inflation in the 1980s and '90s sparked protests _ an embarrassing spectacle that Chinese leaders want to avoid ahead of this summer's Beijing Olympics, which is meant to showcase the country as prosperous and stable.
In a new effort to cool a lending boom, the central bank late Wednesday raised the amount of reserves that Chinese banks must hold by 0.5 percentage points to a record high 16 percent, effective April 15.
The government has nudged up the reserve ratio repeatedly over the past two years to curb lending. But bank deposits are rising so fast amid a flood of export revenues that economists say such increases are too small to affect the amount of money available.
Analysts expect inflation to stay high as late as May before it subsides.
"The underlying inflationary pressures remain undiminished and there are significant risks of a rebound ... in the coming months," Goldman Sachs economists Hong Liang and Yu Song said in a report.
Economic growth in the January-March quarter was down only slightly from the previous quarter's 11.2 percent rate as demand for Chinese goods abroad weakened and the government tried to cool surging investment.
The rise in retail spending in March was up 5.7 percentage points from the same month last year, the Statistics Bureau reported.
Beijing wants to keep growth high to reduce poverty but is trying to cool an investment boom in real estate and some other industries that it worries could ignite a financial crisis.
"The Chinese economy in the first part of this year continued to maintain steady fast and sound development," said Li, the statistics bureau spokesman. "The slowdown in economic growth is really in response to the microcontrol policies."
March inflation was well above the 4.8 percent target that Wen has set for this year. Li, the statistics bureau spokesman, said that to meet Wen's target, inflation has to fall below 4.2 percent each month for the rest of the year.
Total economic output in the January-March period was 6.1 trillion yuan (US$880 billion; euro550 billion), according to the bureau.
That brought China closer to overtaking Germany as the world's third-largest economy.
That is expected to happen this year, though the status will be largely symbolic. China, with more than 1.3 billion people, is still far poorer on a per capital basis.
Despite government curbs, spending on real estate and other fixed urban assets grew by 24.6 percent in the first quarter, the Statistics Bureau said. That was up 0.9 percentage points from the rate of the same period last year.
China's economy grew by 11.9 percent in 2007, but analysts expect that to fall as low as 9 percent this year. By contrast, Germany's 2007 growth rate was 2.5 percent.
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