GROWTH in China's retail sales will likely speed up this year as rising incomes encourage the purchase of luxuries such as vehicles and jewelry, a government report said.

Sales may jump 14.5 percent year-on-year to 8.7 trillion yuan (US$1.13 trillion) in 2007, said Xinhua news agency, citing a report jointly released by the China National Commercial Information Center and the China General Chamber of Commerce.

If the forecast turns out to be accurate, it will beat the 13.7 percent rise last year - the largest growth rate since 1997.

"The consumer market is expanding by one trillion yuan each year as the government cuts taxes, raises minimum wages and increases spending to improve education, welfare and health care," said the report.

Annual disposable incomes among city dwellers advanced 12.1 percent to 11,759 yuan in 2006, while those in rural regions climbed 10.2 percent year-on-year to 3,587 yuan.

Sales of jewelry advanced 28.5 percent year on year in 2006 and those of vehicles increased 26.3 percent, according to the National Bureau of Statistics.

The number of private vehicles reached 292.5 million by the end of last year, up 23.7 percent from a year earlier, and such growth will continue, the report said.

Prices rise

Meanwhile, the report estimated that consumer prices will increase by about 2.8 percent this year. That was in line with the central bank's target to cap inflation growth at three percent.

Inflation climbed 2.7 percent last month, pursuing an uptick from the 2.2 percent rise in January led by a surge in food costs.

"We see a new inflationary impulse is being set in on the back of the renewed acceleration in money and credit growth," said Goldman Sachs economist Liang Hong.

The United States investment bank predicted that the consumer price index will grow 2.6 percent this year. Money supply advanced 17.8 percent in February, the fastest in six months.

The central bank on Thursday raised the reserve requirement ratio by another 0.5 percentage point to 10.5 percent on yuan deposits, effective from April 16.