Inflation may rise further after it hit 5.3 percent year-on-year in April, economists said, but policymakers should not increase interest rates, at least in the short term, if they want to avoid a "hard-landing".
The Consumer Price Index (CPI), a key gauge of inflation, was 0.1 percentage points lower than the 32-month high of 5.4 percent in March, but it is still significantly higher than the government's 4 percent target for this year, the National Bureau of Statistics (NBS) said on Wednesday.
"The decline indicates that the government's previous measures to tame inflation have taken effect," Sheng Laiyun, spokesman for the NBS, said at a news conference.
However, soaring raw material prices and excessive liquidity in global markets may continue to increase inflationary pressure in the short term, Sheng said.
Despite recent drastic fluctuations, oil prices remained above $100 a barrel, adding to inflation fears in emerging market economies, which are heavy oil consumers.
Meanwhile, China's housing prices, including rent, water and gas, jumped 6.1 percent from a year earlier in April, the largest contributor to the non-food price growth of 2.7 percent year-on-year, according to the NBS.
"Non-food inflation has become an increasing concern and it may further lift the CPI up to a new high in June or July this year," Jing Ulrich, JP Morgan's chairman of global markets for China, wrote in a note on Wednesday.
The stubbornly high CPI may force the central bank to continue its tight monetary policy, including controlling money supply and raising interest rates, a move expected by many investors, said Chang Jian, a Hong Kong-based economist with Barclays Capital.
But analysts said that raising interest rates will hurt the corporate sector.
Lu Zhengwei, chief economist at Industrial Bank, said that tight monetary policy will make it more difficult for companies, especially small- and mid-sized ones, to raise money. These companies could reduce investment and cut production because of rising borrowing costs, he said.