China economic data shows inflation accelerating as industrial output slows

China’s new generation of leaders are facing an economic policy catch-22.

Data released Saturday show inflation rose to a 10-month high in February at the same time industrial output – a key measure of activity in China’s thousands of factories and workshops – and retail sales softened.

"The Chinese government is caught in the dilemma of dealing with slower growth and higher inflation yet again," IHS senior economist Ren Xianfang told the Wall Street Journal.

The country’s consumer price index, a gauge of inflation, accelerated to 3.2 percent in February, Bloomberg reported, citing figures from the National Bureau of Statistics. CPI stood at 2 percent in January.

Retail sales and industrial output for the first two months of the year rose 12.3 percent and 9.9 percent, respectively, from a year earlier.

Both growth rates were slower than in December and below expectations.

Reuters said the retail sales growth figure was “the slackest January and February combined since 2004.”

The mixed messages make it difficult for policymakers to know which economic levers to pull.

Is the nascent recovery in the world’s second largest economy stalling?

Or did the Lunar New Year holiday, which fell in February this year and in January in 2012, distort the figures?

Only time – and more data – will tell. 

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