Chinese annual inflation pushed up to an 18-month high in April and property prices rose at a record clip, showing that the government still has its work cut out to keep the world's third-largest economy from boiling over.
However, a slowdown in money growth and industrial output signaled that incremental tightening measures have started to bite, justifying Beijing's cautious approach thus far to tamping down on economic activity.
But analysts said that higher interest rates and a resumption of yuan appreciation -- tightening steps that the government has so far resisted -- should be on the policy menu in coming months.
Consumer prices rose 2.8 percent in the year to April, topping forecasts for a 2.7 percent rise and the highest since October 2008.
Rising inflation is a serious problem, but it's more of an indication of where CPI is heading that is more important than this 2.8 percent, said Dong Tao, an economist with Credit Suisse in Hong Kong.
This probably will not result in an immediate rate hike, but the central bank is getting increasingly nervous of negative real interest rates, he added.
The main stock index in Shanghai <.SSEC> finished down 1.9 percent, with investors unsettled by the inflation outlook.
Worries that China will intensify its monetary tightening also served as a drag on global oil prices.
A central bank adviser, Xia Bin, said that China had signaled this week that it was ready to let the yuan move more freely when it said it would manage its exchange rate with reference to a basket of currencies.
The comments were seen as representing his personal views and not necessarily reflective of official thinking.
The latest batch of economic data underscored why many analysts believe that Beijing will allow only faint appreciation even after it releases the yuan from its de facto dollar peg, which has been in place since mid-2008.
Inflation was driven by food prices, which rose 5.9 percent in the year to April, while core pressures remained relatively subdued, with non-food prices up 1.3 percent.
Although new bank lending was stronger than expected last month at 774 billion yuan ($113 billion), the broad M2 measure of money growth slowed to 21.5 percent year on year, the slowest since early 2009.
And China just narrowly notched up a trade surplus in April, according to numbers published on Monday.
Provided that financial markets stabilize in the next few weeks, we expect China to start the yuan move within the next couple of months, UBS economist Wang Tao said.
China has been working to gradually normalize its monetary stance after flooding the economy with cash last year.
The People's Bank of China has raised banks' required reserves three times this year and stepped up drainage of cash via open market operations, while regulators have given banks strict orders to rein in issuance of loans.
In contrast to regional neighbors such as India, Malaysia and Australia, China has so far eschewed the blunter instrument of raising rates, not least because Beijing harbors doubts about the solidity of the global recovery and has an eye on the all-important property market.
Chinese property prices jumped 12.8 percent in April from a year earlier, the fastest pace in the five-year history of the government's main housing market survey. Economists believe the official figures understate the extent of price rises, especially in major cities.
Memories of how over-tightening led to a property collapse in 2008 would deter the government from making more aggressive moves to slow economic activity, said Tom Orlik, an economist with Stone & McCarthy Research Associates in Beijing.
China's leaders will likely want to see how the targeted measures play out, before following up with an increase in interest rates, he wrote in a note.
Surprising on the downside, industrial output dipped to 17.8 percent year-on-year growth in April. Economists had expected a rise of 18.5 percent.
However, Brian Jackson, an economist with Royal Bank of Canada in Hong Kong, warned that the government could not afford to delay lending rate increases and moderate yuan appreciation for too long.
The risk Beijing faces is that its preference to fine-tune policy and avoid broader tightening until domestic and global uncertainties ease may allow price pressures to build to damaging levels, he said.
(Additional reporting by Langi Chiang; Writing by Simon Rabinovitch; Editing by Raju Gopalakrishnan)