China's annual consumer price inflation jumped to 7.1 per cent in January, the highest in more than 11 years, reinforcing expectations that Beijing will stick to a tight monetary policy despite softening economic growth.
Chinese authorities have tried to quell concerns by blaming the timing of the New Year celebrations and the winter's severe snowstorms for the extra spending.
However, many economists believe that the pressures on the economy are not seasonal and that the rate could climb even higher during the next few months.
Yesterday's rate, up from 6.5 per cent in December, was in line with market forecasts and was the highest since September 1996.
Food prices, which make up one-third of the consumer basket, rose 18.2 per cent in January from a year earlier, the same rate as in November.
Non-food inflation ticked up to 1.5 per cent from 1.4 per cent.
The National Bureau of Statistics, which issued the figures, had not provided a breakdown of December's Consumer Price Index.
Gene Ma, chief economist with China Economic Monitor in Beijing, said: "I don't think the monetary authorities will relax policy any time soon because credit is strong, exports are strong, the PPI is high and now the CPI is high."
The Producer Price Index, issued on Monday, was up 6.1 per cent in the 12 months to January, the highest in more than three years.
The statistics office attributed the jump in the CPI to the timing of the Lunar New Year holidays this year and to fierce winter weather.
Large parts of central and southern China experienced their worst snowstorms in decades in January and early February, disrupting transport links and damaging crops and greenhouses.
However, Jun Ma, chief China economist at Deutsche Bank in Hong Kong, disagreed that the spike in prices was temporary and said pressures already in the pipeline were likely to drive the CPI up 8.1 per cent by March.
"It's going to be very tricky in the next few months.
"Right now, there is pressure for monetary authorities to relax a little bit due to the need for financing reconstruction after the snow storm and also pressure from the export sector, screaming that they are facing a lot of US downside risk," Mr Ma said. "But I think probably in the second half of March or April, when inflation continues to make new highs, the government will be convinced that further tightening is inevitable," he added.
Mr Ma said he expected two fresh interest rate increases in coming months, while others said they expected the central bank to put more emphasis on containing inflation through the exchange rate.
A dearer currency will make imported goods cheaper and reduce China's trade surplus, the fount of excess liquidity that economists say is fuelling inflation.
The central bank, which keeps the yuan on a tight leash, let the currency rise yesterday to 7.1532 per dollar, the highest level since the yuan was depegged from the dollar in July 2005 and allowed to float within managed bands.
The yuan's rate of climb has already quickened in tandem with the rise in inflation over the past few months.