China reported a big drop in its trade surplus on Monday as imports surged and exports sagged, but economists were wary of reading too much into the data because of distortions from the timing of the Lunar New Year.
Of more immediate significance, they said, was that factory-gate prices rose 6.6 percent in the 12 months to February, the fastest rate in more than three years and pointing to a leap in consumer prices when figures are issued on Tuesday.
Premier Wen Jiabao, in his annual report to parliament last week, declared the fight against inflation to be his top economic priority despite clouds over the outlook for global growth.
The trade surplus for February shrank to just $8.56 billion from $19.5 billion in January and $23.8 billion a year earlier, the customs administration said.
Economists, who had expected a surplus of $21.9 billion, explained away the forecasting error by pointing to the vagaries of the calendar: factories shut down at different times each year depending on the timing of Chinese New Year.
Fierce winter weather also disrupted production and shipment schedules this year, further clouding the picture.
"Taking January and February together certainly makes much more sense than taking the February figures on their own. So that would imply export growth has slowed a little bit and import growth has picked up a little bit, which is the trend we expect for the year as a whole," said Paul Cavey, an economist at Macquarie Securities in Hong Kong.
What that means is that China's politically contentious surplus is finally growing more slowly and may even have peaked.
The rolling 12-month surplus fell to $250.6 billion from $265.5 billion in January and $262.2 billion for all of 2007.
By that measure, the surplus was 22 percent higher than in February 2007, well below the 48 percent increase in calendar 2007 and the 74 percent rise in 2006.
Imports rose a striking 35.1 percent in February, boosted by record-high crude oil prices and a growing bill for commodities and raw materials to feed China's thrumming industrial machine.
Exports, by contrast, increased just 6.5 percent from a year earlier.
Zhu Jianfang, chief economist at CITIC Securities in Beijing, suspected that weakening U.S. demand due to the still-spreading credit crisis was to blame.
Exports were still likely to grow by more than 15 percent in 2008 despite government policies to push up the value of the yuan and to penalise export industries that guzzle energy and cause pollution, Zhu said.
But he added: "Imports will grow much faster than exports this year as China needs to import more to increase domestic supply and fight inflation."
February's producer price report, released by the National Bureau of Statistics, suggested the battle against inflation would be a long one.
The 6.6 percent increase was up from 6.1 percent in the 12 months to January and a touch above economists' forecasts of 6.5 percent. It was the highest rate since December 2004.
Wholesale food prices rose 11.0 percent in February from a year earlier.
Soaring food bills have been the culprit for the spike in consumer prices, already at an 11-year high, but many economists are worried that inflation will ripple through the economy because China's monetary policy settings are too loose.
"This will contribute to a rise in consumer inflation. The pass-through from agricultural prices to processed food prices will continue. Inflationary expectations are also on the rise, and expectations can change consumer behaviour," said Jun Ma, chief China economist at Deutsche Bank in Hong Kong.
Economists polled by Reuters expect Tuesday's CPI data to show an annual increase of 8.0 percent, up from 7.1 percent in January, as the impact of snowstorms that disrupted transport and energy passes through the supply chain and pushes up food prices in particular.
Speculation swirled in financial markets that the actual figure could even be closer to 9 percent than 8 percent.
That would set alarm bells ringing in the Chinese leadership, which is aware that raging inflation in the past has sown social unrest.
"Virtually everything is on the rise -- not just fuel, but coal and iron ore -- all these things are growing much stronger than fuel, plus labour costs are going up too," Ma said.
"We think inflation is likely to exceed expectations for now and for longer," he said.
The inflation figures deepened the gloom on the stock market, which has now fallen more than 30 percent from last October's record high.