By Wang Xu (China Daily)
Updated: 2008-04-10 06:58

Inflationary pressure and economic uncertainty further undermined consumer confidence in the first quarter of the year, a widely watched index showed Wednesday.

The National Bureau of Statistics said the consumer confidence index dropped 1.7 percentage points to 94.8 from the fourth quarter of last year, a signal consumers' willingness to open their wallets is waning. In February, confidence slid to an 18-month low of 94.3 when inflation gained 8.7 percent, a 12-year record high.

An index measuring shoppers' confidence in the economy also declined slightly to 90.8 from 92.5 in the fourth quarter of last year, when another index measuring consumers' outlook for the next three months declined to 97.5 from 99.1.

Zhuang Jian, an economist with the Asian Development Bank said: "Concerns about inflation and uncertainty about the economy have cast a cloud over consumer confidence.

"The sluggish stock market also forced consumers to tighten their purse strings because of the depreciated financial investment."

Consumer inflation has been on the rise since last year, largely due to soaring food prices. Mounting inflationary pressure then caused the government to adopt a slew of austerity measures to dampen investment and cool down the economy.

Combined with the turmoil in the international financial market, the move is now creating concerns the world's fourth-largest economy might undergo a major slowdown this year.

The uncertain outlook has triggered a slide in the local stock market. Since the beginning of the year, the benchmark Shanghai Composite Index has shed about 40 percent, partly due to concerns about the profitability of listed companies in a weakened economy.

"The drop in consumer confidence is still moderate, and the potential consumption decline in the coming months is unlikely to have a substantial impact on the overall economy," Zhuang said.

Currently, consumption accounts for less than 50 percent of China's economic growth, compared to about 70 percent in the United States.

"Once inflationary pressures ease, consumer confidence may pick up again," Zhuang said.