Amid tightened monetary policy settings and administrative measures such as price controls, China's headline inflation cooled in December as expected. But whether it can continue to ease remains a big question - some analysts are not optimistic.

The Consumer Price Index, the main gauge of inflation, climbed 4.6 percent last month from a year earlier, the National Bureau of Statistics said yesterday.

It moderated from a 28-month high of 5.1 percent in November and wrapped up last year with a rise of 3.3 percent, surpassing the government's 2010 target of 3 percent.

"December's withdrawal may turn out to be temporary," said Li Maoyu, an analyst at Changjiang Securities Co. "With the market full of liquidity, price growth is likely to pick up again."

Zuo Xiaolei, an analyst at the China Galaxy Securities Co, said the country should manage to slow its economic growth in a bid to put inflation under control.

"Ideally, China's economy should expand at a pace between 9.5 and 10 percent. Otherwise, it's easy to ignite inflationary expectation," Zuo said.

China's gross domestic product jumped 10.3 percent from a year earlier to 39.7 trillion yuan (US$6 trillion) last year, up from the growth of 9.2 percent in 2009.

On Tuesday, Chinese Premier Wen Jiabao said the government will focus on reining in food prices and the housing market in an outline of the government's key work for the first quarter.

Some analysts estimated consumer prices may peak at 6 percent in the first three months of this year because of more inflationary pressure during the Spring Festival.

China has shifted to a prudent monetary policy stance to curb rising consumer prices and contain asset bubbles.

The central government set a 4 percent target for this year's inflation.

China has beefed up efforts to tame inflation since the second half of last year. The People's Bank of China lifted interest rates twice in the past four months and ordered commercial banks to put aside more reserves last Friday to soak up market liquidity.

A slower rise in producer prices may be a good sign.

The Producer Price Index, the factory-gate measurement of inflation, grew 5.9 percent on an annual basis in December, compared with November's 6.1 percent.

"It indicated less pressure from production costs will be transferred to consumers in future months," Li said.

"But the current round of inflation is not led by production costs only."

Li suggested policy makers raise interest rates again this month and limit bank loans to guarantee market liquidity at a healthy level.

According to an earlier report, China may cut lending by up to 10 percent this year and is studying punitive measures to penalize lenders who lend excessively.