BLOOMBERG in Beijing

Retail sales surged to a record high on the mainland last month as higher incomes made clothes, cosmetics and computers more affordable.

Sales increased 14.2 per cent from a year earlier to 498 billion yuan after gaining 14 per cent in September, the National Bureau of Statistics said on its website. It was the biggest gain in five months and compares with a rate of 10.2 per cent in October last year.

Urban retail sales rose 14.7 per cent to 326.8 billion yuan last month, while rural retail sales increased 13 per cent to 171.6 billion yuan, the bureau said.

China, the world's seventh-largest economy, is relying on consumer demand to sustain growth as the government clamps down on industrial expansion to help stem gains in costs of raw materials and ease power shortages.

The latest retail sales figures add to evidence that China will avoid a slump as investment cools. "Investment is expected to fall in the coming months," said Tao Dong , chief economist for Credit Suisse First Boston. "Robust spending will provide a cushion."

Sales of home appliances and audio-visual equipment rose 14 per cent last month, the report showed. Furniture sales increased 30 per cent and telecommunications equipment sales surged 28 per cent.

The retail sales figures "eased concern of a hard landing and boosted investors' confidence", said Zhou Keyu, an analyst at Guotai Junan Securities in Shanghai.

Sales of food and drink, clothing and household merchandise all rose 18 per cent last month, according to the report. Sales of groceries, meat and cigarettes jumped 27 per cent and cosmetics sales increased 30 per cent.

Still, the mainland's growing appetite for consumer goods may hamper government efforts to dampen inflation, which reached a seven-year high of 5.3 per cent in July and August.

"Demand will push up inflation, and in turn, inflation will pressure the central bank to consider raising rates," said Huang Yiping , an economist at Citigroup. "There is a chance for a 50-basis-points increase in the coming six months."

The People's Bank of China raised its key lending rate for the first time in nine years last month, increasing it to 5.58 per cent. That added to lending curbs and other controls introduced to cool investment in industries such as steel and car manufacturing that were expanding too rapidly.

Sales of cars and car parts, which companies say have been affected by the loan limits, gained 2.1 per cent last month, the bureau said. The restrictions have had little impact on other products. Sales of children's toys and jewellery both jumped 25 per cent last month and those of sports and entertainment goods increased 16 per cent, it said.