March 12 (Bloomberg) -- China's retail sales climbed 20.2 percent, matching the fastest pace in at least nine years, a sign that consumer spending may sustain the world's fastest- growing major economy as export demand weakens.

The increase for January and February was the same as December's and more than the 19 percent median forecast of 18 economists in a Bloomberg News survey. The figure was boosted by the fastest inflation in 11 years.

Spending fueled by a 17 percent increase in urban incomes last year helps the expansions in China of Wal-Mart Stores Inc. and Carrefour SA, the world's biggest retailers, and may curb the economy's dependence on exports and investment for growth. Overseas shipments rose 6.5 percent in February, the least in almost six years.

``Domestic consumption is going to be a relatively strong growth engine in the near term,'' said Michael Dai, senior economist at Bank of China (Hong Kong) Ltd. ``Trade might slow down, investment might slow down but consumption is going to hold up -- even more so with increasing inflation.''

Consumer-price inflation accelerated to 8.7 percent in February, underscoring the risk the world's fourth-largest economy will overheat after expanding 11.2 percent in the fourth quarter. Producer prices, the cost of goods as they leave the factory, rose 6.6 percent, the fastest pace in three years.

Haier Electronics

``If spending continues at this rate then it will fuel inflationary pressures,'' said Paul Cavey, an economist at Macquarie Securities Ltd. in Hong Kong.

Haier Electronics Group Co., China's biggest appliance maker, has raised prices of refrigerators and washing machines this year, citing wage and raw-material costs.

Jewelry sales rose 47 percent from a year earlier, grain and cooking oil climbed 41 percent, and petroleum jumped 40 percent. Furniture gained 26 percent, while automobiles surged 34 percent.

Buoyant spending is boosting company earnings. Chongqing Changan Automobile Co., the Chinese partner of Ford Motor Co. and Mazda Motor Corp., said auto sales climbed 23 percent last year.

To foster domestic consumption, China is raising welfare payments and subsidizing farmers' purchases of televisions and refrigerators. Urban disposable incomes climbed to 13,786 yuan ($1,900) last year, while rural earnings rose 15.4 percent to 4,140 yuan.

Rural Incomes

China's per capita gross national income of $2,010 in 2006 compared with $44,970 in the U.S. and $250 in Rwanda, according to a World Bank report.

``The underlying story is that because food prices are rising rural income growth is the strongest it's been for years,'' said Cavey. ``Urban incomes also are very strong and with real interest rates very negative people don't want to leave money in the bank.''

``Real'' interest rates are returns after inflation. The key one-year deposit rate is 4.14 percent, less than half the rate of inflation.

Bloomberg's retail sales data for China begins in 1999. The government didn't release separate figures for January and February.

To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

Last Updated: March 12, 2008 06:08 EDT