(Shanghai Daily)
Updated: 2007-08-15 08:55

China's retail sales grew at the fastest pace in more than three years in July, led by the effects of increasing consumer prices and rising household incomes.

Spending climbed 16.4 percent to 699.8 billion yuan (US$92.33 billion) in the month from a year earlier, the National Bureau of Statistics said yesterday. The growth rate, picking up from the 16 percent in June, was the highest since May 2004.

Meat, poultry and egg sales jumped the most, rising 51.4 percent from a year earlier, the bureau said. Spending on jewelry climbed 45.9 percent, and vehicle sales increased 42.7 percent.

For the first seven months, retail sales climbed 15.5 percent from a year earlier to 4.9 trillion yuan.

"While higher household income is backing consumer spending, expectations of higher consumer product prices worked more last month to bolster purchasing," said Li Mingliang, an analyst at Haitong Securities Co.

Inflation in July expanded at the fastest pace in more than a decade, growing 5.6 percent, primarily as a result of a 15.4 percent increase in food prices. Meat and poultry prices soared 45.2 percent while egg prices surged 30.6 percent.

Ten major domestic instant-noodle makers raised prices of their products last month by an average 20 percent due to surging costs of ingredients such as palm oil and flour. The manufacturers included Hebei-based Hualong Food Co, White Elephant Food Co in Henan Province and Jin Mailang Beverage (Beijing) Co Ltd.

Liang Hong, an economist at Goldman Sachs, said consumer expectations of continuing high inflation in the coming months is likely to keep retail growth at a high level.

Analysts also said rising income and the wealth effect from the equity market boom will support sales growth.

China's retail sales will probably jump 15.8 percent to 8.85 trillion yuan this year as a rosy economic outlook helps boost consumer confidence, according to a forecast by the State Information Center, a research unit of the National Development and Reform Commission.

The government has cut taxes, raised minimum wages and increased spending on education and health care to boost consumption and relieve the economy's dependence on investment and overseas sales.