Furthermore, if higher food prices are now boosting farmers' incomes, then many of these urban poor could be next in line to benefit. When rural workers find they can earn a better living at home, fewer will choose to migrate. As a result, wages for urban workers who compete with migrants should rise too.

But the argument that wages are behind recent price increases has not been proven. Wages may have risen rapidly over the past year after stalling in 2009. But they had been increasing very fast for years before that. The average take-home pay of migrant workers doubled in the five years leading up to 2008.

In that context, recent wage gains are nothing out of the ordinary and there is no particular reason to think that they are behind the extraordinary increases in the prices of many food products. That suggests something else may be at work - most likely crops were damaged in the widespread floods in summer, limiting supply. In that case, farmers may not be benefiting much from higher prices since they have less produce to sell. In addition, this means that price increases are likely to prove temporary - they will be reversed as new harvests replenish supply. The result is likely to be lower inflation in 2011 than many are now expecting.

A second implication is that inflation probably will not do much over the medium term to boost rural incomes. In fact, finding effective means to put a larger share of China's income into the pockets of average households, both in urban and rural areas, may present a bigger challenge than inflation this year. The government has put economic rebalancing at the forefront of the 12th Five-Year Plan (2011-2015), but it is unlikely to achieve this goal unless workers receive a larger share of the economic pie.

Pay has risen rapidly over the last decade, but the amount going to the corporate sector in the form of profits and to the government has increased even more. This helps explain why investment has grown much faster than consumption, and why growth of output from Chinese industry has outstripped growth of domestic demand for its products, with a large trade surplus the inevitable result.

Shifting that pattern matters a great deal for China's future. The economy's growth rate over the medium term will be determined in large part by how fast Chinese households increase their spending, now that consumers overseas can no longer be relied upon to buy China-made goods. But it matters too for China's relationship with the rest of the world, particularly the United States.

Failure to achieve meaningful rebalancing in the form of a much smaller trade surplus would raise the risk that calls for a protectionist response become a rallying cry ahead of the presidential election in the US in 2012. Protectionism may ultimately prove to be a far greater threat to China's outlook than inflation.

The author is a senior China economist at Capital Economics, a London-based independent macroeconomic research consultancy.