For the clearest sign of the rapidity of economic change engulfing the mainland, turn to Premier Wen Jiabao. In December's annual Central Economic Work Conference, the premier led top policymakers in shifting a long-held monetary policy stance against overheating from 'prudent' to 'tight'. But what a difference three months have made when in his government work report delivered at the National People's Congress last week Mr Wen called for relaxation of government policy while bracing for slower growth and higher inflation amid increasing global uncertainties. Although the report offered little that is astoundingly new, it is dusted with hints that encapsulated the magnitude of the economic dilemma and is a real test for officials on how to achieve balance and ensure growth in the continuing transformation to a market economy. Top of the list is controlling accelerating inflation, exacerbated by recovery costs from the worst snow storms in 50 years and the untallied losses to winter crops. The situation is complicated by the global and regional uncertainties of rising inflation across Asia due to higher food and energy prices and the consequential effects of the United States subprime crisis, all unprecedented economic anomalies confronting Beijing. 'There are still some prominent problems and multi-tiered contradictions in our economic operation,' Mr Wen said in his report. Mainland consumer prices have risen the fastest in a decade and there are no signs of a letdown, only every indication that they will straddle the second quarter of this year. Primarily driven by food prices, but also fed by higher energy and labour costs, inflation in January rose 7.1 per cent, with food prices up 18 per cent. With wet markets and retailers taking advantage of last month's bad weather to raise prices, the inflationary momentum looks likely to continue. Beijing is expected to reveal the figures for the first two months of the year this week. Goldman Sachs has put last month's inflation at 8.5 per cent. Mr Wen, who proclaimed inflation a public enemy, has set the target for this year at 4.8 per cent, the same rate as last year, on the grounds that 'the impact of the spill-over from last year's price rises will be relatively big'. 'There are many factors pushing up prices; the difficulty of controlling price rises has increased,' he said. A post-blizzard recovery is expected to pressure the already tight supply for raw materials and energy in the country, pushing prices up further. Baosteel, China's biggest steelmaker has announced an across-the-board 20 per cent rise in steel prices to offset the 65-per cent surge in international iron ore prices, which have already jumped five-fold in the past five years. 'Given the domestic and foreign economic uncertainties ... [we] must be in correct command of macroeconomic policy in regard to its rhythm, focus and strength and must be realistic and flexible when we make such corresponding policy,' Mr Wen said. UBS economist Jonathan Anderson warned in a research note a day after Mr Wen's speech last Wednesday that 'China's inflationary 'scare' will likely be with us for a while longer'. Weak domestic growth is expected to slip into the second quarter as a result of snowstorms, power cuts and transport failures, he said. Beijing's counter-inflationary efforts have come on two fronts. Administratively, last September it ordered price freezes on consumer products. In January, it issued its toughest measures in years by capping prices of a range of products, including grain, meat, milk, edible oil, eggs and liquefied petroleum gas. The controls underscored the struggle to combat inflation and, needless to say, drew criticisms of whether China was regressing into a planned economy. While officials say they are only temporary, they have also triggered a political debate among scholars and officials. Mr Wen offered the clearest determination yet of pro-market leanings when he urged delegates to 'liberate their thinking' and 'persist reforms'. The People's Bank of China has also introduced a series of monetary measures such as raising banks' lending rate, which has been lifted six times since last year. The increases have translated to a cumulative total of 130 basis points, but this still paled in comparison with the almost 500 basis points acceleration in inflation over the same period, according to UBS. The central bank has also raised banks' reserve ratio with a total of 13 rises in the past 18 months to mop up excess liquidity. At the same time, banks are ordered to restrict credit to slow lending and ease overheating in some sectors. In addition, Beijing has allowed the yuan to rise in value. Sceptics however, have discounted the effect of the monetary measures, and say that they may worsen inflation as higher interest rates and a stronger currency have attracted 'hot money' to the mainland, boosting domestic money supply. Goldman Sachs is attributing rapid money supply growth - an estimated 18.5 per cent - to an expected higher rate of inflation for last month. 'While we believe the snow storms may have contributed to the high February reading, we believe that the high and rising inflation has been mainly driven by rapid money supply growth,' said Goldman Sachs economists Yu Song and Liang Hong. The UBS report argued that the only 'true anti-inflation policy' was the introduction of price controls in the second half of last year. To reinforce efforts, Ma Kai, the chief of the top planning agency, the National Development and Reform Commission, pledged last week in his report to the NPC to increase production and supply of food, edible oils and meats this year, as holding down prices could dissuade producers to increase output and create further shortages pushing prices higher. In a subsequent press conference, Mr Ma described the multiple factors that contributed to the food price increases as 'reasonable rebounds' following years of sluggishness. He also attributed the increases to increased costs for land, labour, energy and raw materials, as well as environment protection. As a check of such rises, the authorities should strengthen regulation and crack down on irregular increases by retailers and the market, he added. Indeed, authorities' fear of possible runaway inflation is an understatement evidenced by the countless warnings from top officials at congress, and the looming global slowdown is no comfort. While central bank governor Zhou Xiaochuan says there is room for further interest-rate rises, the US has moved in the opposite direction to try to stimulate growth after the subprime crisis broke last summer. The difference in interest rates between both countries would likely put further upward stress on the yuan, attract more inbound foreign capital and create inflationary pressure. 'Since the start of the subprime crisis last summer, no end has been sighted so far, and therefore [it] can't be seen lightly,' Mr Zhou said in the same press conference attended by Mr Ma. The central bank governor said any changes from a US economy-driven global economy, including changes to international trade, would affect the mainland economy, but the extent of the impact has to be closely monitored. 'Amid deepening globalisation, there are many impacts that are beyond our experience and our previous analyses, therefore we need to pay close attention,' Mr Zhou said.