China reported higher-than-expected inflation and new bank lending in October, figures that put in question the government's ability to reach key economic targets it had set to contain risks from its massive stimulus program.

As the end of 2010 approaches, the government's plans to limit inflation to near 3% and new bank lending to 7.5 trillion yuan (about $1.1 trillion) this year are both perilously closed to being violated. Those targets were adopted early this year as the government tried to shift course from last year's all-out drive for growth to combat the financial crisis.

Officials wanted to avoid a repeat of last year's historic surge of nearly 10 trillion yuan in new loans, which risked saddling banks with bad debts and inflating bubbles. But banks' eagerness to lend and upward pressures on prices have both turned out to be stronger than anticipated, which many analysts think will force the government to take tougher measures.

China's consumer price index rose 4.4% from a year earlier in October, as food prices drove the fastest increase in two years. Price rises accelerated sharply from the 3.6% increase in September and beat market expectations of a 4% gain. Average inflation for the year has now reached 3% and is likely to march higher unless the readings slow sharply in the next two months.

"I think that in order to achieve this year's price target we will have to work even harder," Sheng Laiyun, spokesman for the National Bureau of Statistics, said Thursday as he announced the figures. "We feel that in the current situation, there are rising price pressures, so the pressure from macroeconomic controls also has to increase."

In a separate statement Thursday, China's central bank said new loans made totaled 587.7 billion yuan in October, little changed from September and well above expectations for the traditionally slow month. Growth in loans outstanding also picked up to 19.3% in October from 18.5% in September. With 6.88 trillion yuan in new loans already made this year, to stay within the 7.5 trillion yuan target, average monthly bank lending would have to be cut in half to about 310 billion yuan for the next two months.

"Although the final months of the year traditionally see weak loan growth as banks nudge up against their lending quotas, it looks increasingly likely that banks will sail past the target," said Alistair Thornton, a Beijing-based analyst for IHS Global Insight.

The data published Thursday help explain the Chinese central bank's renewed urgency in tightening monetary policy. On Wednesday, the People's Bank of China had ordered banks to hold back more of their funds from lending, raising the reserve-requirement ratio by half a percentage point. The move to tighten bank credit came less than a month after the central bank raised benchmark interest rates for the first time in nearly three years, and underscored a shift to a more aggressive policy.

In the first official comment on the reserve move, deputy central bank governor Hu Xiaolian said Thursday that "This shows that we will continue to ensure that the supply of liquidity and the liquidity in the banking system are appropriate." She said the central bank will "continue to closely monitor price trends and continue to use traditional policy tools in a flexible and effective way."

Backing up that statement, the central bank on Thursday drained a net 30 billion yuan from the money market through its regular open market operations, up sharply from 500 million yuan last week. Traders said they expect the central bank to sell more short-term debt in the coming weeks as it moves to mop up capital inflows.

Officials remain confident in public. Zhou Wangjun, the deputy director of the price department at the National Development and Reform Commission, said Wednesday that commodity stocks and other government measures can keep inflation in check. While average inflation for the full year would likely be slightly over 3%, he said that would still be in line with the official target, which only calls for keeping inflation "around 3%."

Nonetheless, economists think the pickup in inflation has got officials' attention. "Inflation is significantly stronger than market and government expectations one or two months ago," said Deutsche Bank economist Jun Ma. "For the next few months, we think fighting inflation will likely become the top priority of the government." He expects the government to raise interest rates further and continue allowing the Chinese yuan to appreciate against the U.S. dollar.

Other data published Thursday showed continued steady expansion in China's domestic economy, which could reassure officials that growth can withstand further moves to contain inflation. Value-added industrial output, a key measure of activity for the key manufacturing sector, grew 13.1% from a year earlier in October, only a tad below September's 13.3% rise. Growth in urban fixed-asset investment, the benchmark for capital spending, was steady at 23.7% in October after 23.2% in September.

Moody's Investors Service also delivered a vote of confidence in the government's policies Thursday, raising its rating on China's debt one notch to Aa3 from A1. "The record of the past year demonstrates that China's policy response to the 2008 crisis has been effective," said senior vice president Tom Byrne. The rating is based on "the ability of the Chinese authorities to protect systemic stability from the underlying threats arising from the extraordinary credit expansion evident in 2009."