Pressure is building up for regulators to resort to further monetary tightening, as a key inflation gauge rose to its highest level in three years.

The Producer Price Index (PPI), a measure of inflation at the wholesale level, jumped 6.1 percent year-on-year in January, the National Bureau of Statistics said on Monday.

That was the fastest growth in more than three years, after a steady rise in the past seven months. Rising energy and food costs caused the PPI increase.

Another widely watched indicator, the Consumer Price Index (CPI) will be released on Tuesday. It is widely expected to top 7 percent, surpassing the previous 11-year-high of 6.9 percent in November.

China has raised the interest rates six times and the bank reserve requirement ratio 11 times since the start of 2007.

The inflationary figures dampened hopes for an ease in the monetary policy, amid a global economic slowdown and a temporary blow to growth due to snowstorms that brought half the country to a standstill.

"Currently, the country should stabilize financial policies and stick to preventing the economy from overheating and preventing full-scale inflation," the People’s Daily said Monday.

Overheating is a bigger threat than a sudden slump this year, said the paper.

"This is a year of the Olympics and of a government reshuffle, and many parties are eager to start new projects. If credit was relaxed, investment would rebound immediately and the mercury in the economic thermometer would shoot up," it said.

The paper called the impact of the snowstorms short-lived, citing the example of the SARS outbreak in 2003 during which China's economic growth slowed down to 9.3 percent in the second quarter, but managed to reach 10 percent for the whole year.

Financial News, a paper under the central bank, also called against a relaxation in the monetary policy due to a spurt in money and credit growth in January.

Last month, China's broad money supply rose 18.9 percent in January from a year earlier, while banks issued 803.6 billion yuan in new loans, compared with an average of 470 billion yuan for the same period in the last three years.

(China Daily February 19, 2008)