China has tried price caps on key commodities, tariffs aimed at discouraging exports of others, and a range of other measures aimed at easing the sticker shock felt by the masses.

But consumer prices soared 8.0 percent in the first quarter of the year, the highest level in nearly 12 years, showing that policy makers in Beijing were yet to find the right policy levers to pull.

"I think it's, let's say, a tricky policy problem," said Robert Subbaraman, a Hong Kong-based economist for Lehman Brothers.

The pressure on the Chinese government to get its policies right is immense.

Rising prices could trigger unrest, especially because the current inflationary spiral has been led by food prices, which tends to hurt the poor the most and exacerbates an already yawning income gap.

Low-income households account for 20 percent of the population and food spending devours 45 percent of their income, according to Ma Qing, a Beijing-based analyst with the CEB Monitor Group think tank.

"Inflation is higher in the rural areas and poor provinces than in cities and rich provinces along the coast, so the pressure is certainly quite large," he said.

Therefore, on a crowded Beijing policy agenda that stretches from Tibet unrest to preparation for the Olympics, the weightiest item may actually be how to deal with the soaring inflation.

China has only limited policy options at its disposal and interest rate hikes -- a classic tool in the inflation-fighting arsenal much used by Beijing -- may not be the best solution, analysts argued.

Higher interest rates may be effective if inflation is caused by excessive demand, and officials need to speedily slow down the activity among consumers and enterprises.

The problem is that the current bout of inflation is caused more by shortages in supplies of essential commodities such as pork, and an interest rate hike might discourage production, making the problem worse.

That is one reason why China is increasingly turning to incentives that will motivate farmers to produce more.

"It's not clear that raising rates will help that much, (but) they are allocating more fiscal finances to help support the agricultural sector," said Subbaraman.

At the heart of China's inability to deal with inflation is its exchange rate regime, which forces the government to buy up all incoming foreign exchange and in turn flood the market with local currency.

"Until they address monetary expansion, which means fixing the currency regime so that we see a sharp drop-off in net inflows, inflationary pressure will continue and may even grow," said Michael Pettis, a finance professor at Peking University.

"That means that in order to fight inflation effectively they will have to move the currency upwards much more rapidly, while at the same time without encouraging further massive hot money inflows."

There is one important factor that officials in Beijing need to keep in mind as they seek to curb prices: They do not have unlimited time at their disposal.

If people start expecting inflation, the problem begins to take on a momentum of its own, and all endeavours by policy makers turn out to be more or less in vain.

This is what happened to the western economies in the 1970s, when the shock of higher oil prices pushed them into a "lost decade" of spiralling inflation.

"Once the 'inflation genie' is outside the bottle, it's very hard to put it back in," said Subbaraman.

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