China inflation highest in nearly 12 yrs

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The 8.7 percent rise in the consumer price index over last February exceeded forecasts and raised the likelihood of interest rate hikes or emergency steps by Chinese leaders, who already have imposed price controls on food.

Communist leaders worry about a political backlash if soaring prices erode rising living standards. Bouts of high inflation in the 1980s and '90s sparked protests, a scenario they want to avoid amid global scrutiny of China ahead of August's Summer Games.

Inflation was driven by a 23.3 percent jump in food costs, according to the National Statistics Bureau. Such rises are especially worrisome to Chinese leaders because they hit the country's poor majority hard.

"I'm concerned that there will be demonstrations. The government must recognize this," said Robert Broadfoot, managing director of Political and Economic Risk Consultancy Ltd. in Hong Kong.

Food price inflation "hits poor Chinese a lot harder than Chinese who have benefited from the economic boom," Broadfoot said. "When people already are marginal and just can't pay, they're going to demonstrate."

Economists say inflation should stay high possibly as late as May before it begins to ebb.

"China will find it difficult to meet the target inflation rate of 4.8 percent for the full year," Jing Ulrich, JP Morgan's chairwoman of China equities, said in a report to clients.

February inflation was China's highest since May 1996, when prices rose 8.9 percent, according to Goldman Sachs.

Overall inflation was up sharply from January's percent 7.1 percent rate. Economists had forecast a rate closer to 8 percent.

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