'The need to better manage inflationary expectations' is once again one of the government's top economic priorities, according to the State Council, a statement many watchers took as an advance warning that Beijing is preparing to tighten policy in order to crack down on rising prices.

Yet although inflation is a threat, it may not be quite the threat the warning signals imply.

In Hong Kong, the apparent return to consumer inflation last month is something of a mirage. The year-on-year rise in consumer prices is entirely explained by the expiry of the government's subsidy for household electricity bills, which was introduced last year in order to massage headline inflation rates lower.

With the subsidy now removed, the utilities component of the CPI has increased sharply. But as the first chart below shows, if you strip out the distorting effects of the government's measures, Hong Kong prices are still falling on an annual basis, indicating inflation pressure is less severe than the headline rate implies.

On the mainland, too, the apparent return of inflationary pressure may not be quite the threat it seems. For one thing, growth over the past 12 months may not have been as strong as the official 7.9 per cent figure implies.

Charles Dumas at independent economic consultancy Lombard Street Research has calculated his own numbers for the mainland's inflation-adjusted growth rates, based on nominal GDP data and a deflator derived from published indices.

He reckons that the slowdown in the last quarter of last year and the first three months of this year was much more severe than official figures indicate, and that the mainland economy contracted 6.5 per cent over the six-month period.

The rebound since then has been undeniably impressive, thanks to government stimulus efforts and ballooning credit growth. But according to Dumas, the depth of the slowdown means that year-on-year growth rates this year have been a lot more modest than the government claims (see the second chart below).

That would imply that the deflationary output gap that Beijing is now working hard to close may have been considerably wider than indicated by the official data, postponing the risk of price rises.

And with recent growth almost entirely powered by investment, any scaling back of stimulus spending or bank lending is likely to lead to a significant moderation in domestic demand, damping down inflation pressure.

Moreover, with some of this year's new bank loans inevitably channelled into industrial expansion, excess capacity in manufacturing should help keep a lid on goods prices.

That doesn't mean inflation cannot rear its ugly head somewhere else. With new bank loans over the first nine months of the year up almost 150 per cent from the same period in 2008, all that extra cash has to go somewhere.

At the moment, a lot is being channelled into the stock and property markets, where it risks fuelling asset price bubbles. Some has been poured into commodity markets, where it has helped push up the prices of tradable metals. And over the next year, there is a danger domestic food prices on the mainland will begin to rise at a faster clip.

But given the continuing softness of private demand, the threat of rapid across-the-board consumer price inflation either in Hong Kong or on the mainland looks reassuringly remote.