Wang Qilu looked out from his street-side fruit and vegetable stall and sighed.

"Business is getting worse," he said, his eyes downcast. "Prices keep going up and fewer people are buying."

After 15 years of menial jobs, including work as a street cleaner and coal miner, the stall had provided the 41-year-old with a safe and steady income. Until he began to feel the force of inflation, that is.

According to the National Bureau of Statistics, food prices in October rose 10.1 percent year-on-year, the highest rate in two years. Vegetable prices alone climbed 18 percent.

The result has led to a massive 4.4-percent growth for China's consumer price index, a key indicator of inflation.

"Take the retail price of long beans," said Wang in Taiyuan, capital of Shanxi province. "To buy 1 jin (a Chinese measurement equal to 500 grams) has almost doubled from 2 yuan to 3.5 yuan in the last month."

The father of two is used to taking home roughly 3,000 yuan ($450) a month but explained things are getting so tight he could be forced to delay buying his younger daughter a new winter coat.

Under the pressure of high inflation, the State Council last week announced a package of measures to prevent further price hikes, including increasing supplies of vegetables and daily necessities, as well as offering subsidies to low-income families.

On Nov 19, China's central bank also raised the reserve requirement ratio (the amount commercial banks must hold in customer deposits) by 50 basis points for the second time in nine days.

"The recent moves by the Chinese government indicate the nation has realized the importance and necessity of normalizing monetary policy and suppressing high inflation," said Wang Tao, head of China economic research at UBS Securities, a global financial services firm.

Greater burden

When China witnessed its fastest rate of inflation in more than a decade in January 2008, the root cause was the increase in energy costs. In response, officials issued temporary price freezes for oil, natural gas and electricity, as well as daily goods and public transport.

However, this time the surge is more due to "bad weather, a continuous rise in the costs of labor and land, and speculation", according to Zhou Wangjun, deputy director of the National Development and Reform Commission's price department.

Regardless of the cause, the effect on consumers is the same: bigger food bills.

China's major dairy producers, including Yili Group and Bright Dairy, have increased their prices for liquid milk products by 4 to 10 percent, with further to come in the months ahead, an industry source told China Daily.

McDonald's, the world's largest fast food chain, also announced it will add 0.5 to 1 yuan on menu items at more than 1,200 restaurants across China due to the "rising cost of raw materials".

Lin Jinquan, a taxi driver with a teenage daughter in Fuzhou, capital of Fujian province, said his family's daily food expenditure has risen from 40 yuan to 60 yuan in recent weeks, putting an extra strain on his monthly 2,500-yuan salary.

"Inflation is everywhere," said the 40-year-old. "When I'm driving, I hear about it on the radio. When I go home, I listen to my wife complaining about it. Even when I stop for lunch, some of my favorite dishes are missing from the menu.

"I really have no idea what to do," he added.

To help people like Lin, local authorities are expected to launch their own measures and report their progress to the central government at the end of this month.

In Beijing, officials have announced plans to provide subsidies worth a total 22.3 million yuan to low-income families, while Shanghai has frozen prices of taxi services, and electricity and gas supplies.

On Nov 18, the National Development and Reform Commission also stated on its website that recent initiatives to crack down on fruit and vegetable speculation were already paying off, with declines seen in the prices of several goods.

Less impact?

However, economists say they fear the impact of the price-control measures will be limited and are instead calling for more stringent monetary policies, such as a rise in interest rates and a currency appreciation.

Wang Qing, an expert with global financial services firm Morgan Stanley, estimated that China's consumer price index will rise in the first quarter of 2011, hitting a peak of 5.5 percent year-on-year by mid-year, before slowing to four percent year-end.

"If Chinese authorities rely mainly on administrative controls on monetary aggregates to handle inflation instead of allowing price-based policy instruments, such as rate hikes and yuan appreciation, the risk of a policy-induced boom and bust cycle would increase."

Authors of a report released by the Royal Bank of Scotland agreed and said that the recent government measures are "aimed more at profiteering".

"The measures are unlikely to curb inflation (of food prices). Prices continued to rise in 2008 even after similar controls were introduced," reads the report. The analysis states that, after a decade of 2-percent inflation and 10-percent GDP growth, on average, the Chinese economy has grown "accustomed to low inflation and low rates".

A higher rate of inflation means the authorities will have to "raise policy rates, rather than selectively tighten regulatory policy", the report adds.

Shoppers also appear to be short on optimism. A joint report by Nielsen, the global market researchers, and the National Bureau of Statistics' economic monitoring and analysis center, shows that, in the three months ending September, China's consumer confidence index fell for the first time in six quarters.

About 76 percent of consumers expect prices to keep rising over the next 12 months, up 70 percent on the previous quarter.

In Fuzhou, residents have even started to grow their own vegetables to save money. Official statistics show food prices in Fujian rose 9.7 percent in October compared to 2009. Vegetable prices were up more than 30 percent.

Chen Yibo, who runs a salvage station in Helin village, collected every discarded bathtub he could find, filled them with soil and planted cabbages, chives and eggplants.

"Had it not been for the fact we can't afford vegetables, I'd never have imagined this waste could be used to grow food," he said, smiling. He guards his bathtubs day and night to prevent his vegetables from being stolen.

'Strong tailwinds'

Wang Qing at Morgan Stanley said he believes 2011 will be the "year of reflation" for China's economy, as the post-economic crisis normalization and rebalancing continues.

The central government pumped record 9.6 trillion yuan in low-interest credit into the economy in 2009 and was expected to advance another 7.5 trillion yuan this year.

"The lagged effect of (that) massive monetary expansion is expected to go on providing strong tailwinds for inflation," said Wang Qing.

The loosening of monetary policies by some developed nations, including the United States and Japan, is also likely to push inflation in China to a new high.

Earlier this month, the US announced it will print $600 billion in government bonds to rescue its economy, known as quantitative easing. The move is expected to result in a huge influx of hot money into emerging markets, including China, which will boost the prices of many commodities.

"It is unavoidable and reasonable for China to appreciate its currency at a moderate and mild pace to fend off the negative impact of hot money from overseas," said Ba Shusong, senior economist on finance for the State Council's Development Research Center.

The annual central economic working conference will be held in December and controlling inflation is widely expected to be at the top of the agenda. Media reports citing unidentified sources have suggested officials at the conference could set a higher inflation target of 4 percent for 2011.

"(The central government) will use quantitative tools and price tools to manage liquidity," assured Hu Xiaolian, deputy governor of the central bank. "It will also control the pace of bank lending in the remaining two months of this year."