China's consumer confidence index dropped in the first quarter, affected by inflationary pressure, said the National Bureau of Statistics (NBS) on Wednesday.

The index fell 1.7 percentage points from the previous quarter to 94.8, said the NBS.

Consumer confidence hit an 18-month low of 94.3 in February following reports that the consumer price index had surged to a 12-year high of 8.7 percent, with food prices rising by 23.3 percent.

"For consumers, price rises have outpaced earnings increases, making them less confident about actual income," said Zhuang Jian, senior economist at Asian Development Bank Resident Mission in China.

He said that would have a negative impact on future consumption as consumers might cut purchases.

A sluggish capital market also contributed to the confidence drop, said Ding Zhijie, deputy head of School of Banking and Finance at University of International Business and Economics.

Chinese share prices have dropped about 40 percent since last October, when the benchmark Shanghai Composite Index set an all-time high of 6,124.04 points.

The consumer confidence index release followed the disclosure of a slightly higher entrepreneurial confidence index and a lower business climate index, both for the first quarter.

The entrepreneurial index rose 1 point from the previous quarter to 140.6, while the business climate index slid 7.4 points to 136.2.

The country's tight monetary policy and global economic uncertainties, including the fallout of the U.S. sub-prime mortgage crisis, had jointly dragged down the business climate, said Zhuang.

"Those changes were short-term fluctuations and indices will turn better in the second quarter," he told Xinhua.

Ding agreed with Zhuang, saying the figures did not implicate a turning point for China's economy to lose momentum.

"The government has already taken a series of macro-control measures and their effects will be seen in the future," said Ding.

The central bank had raised deposit reserve requirement ratio twice so far this year to a record high of 15.5 percent. It also drained 3.6 trillion yuan (514.3 billion U.S. dollars) through open market operations in the first quarter to absorb excess liquidity.

The central bank has said the country would continue with its tight monetary policy and adjust it in response to economic changes at home and abroad.

China will keep its economic growth at about eight percent and inflation rate at around 4.8 percent this year, according to targets set by the country's Cabinet.

(Xinhua News Agency April 9, 2008)