Chinese Premier Wen Jiabao voiced confidence Sunday that his government can contain rising prices, seeking to reassure the public about inflation a day after the central bank raised interest rates for the second time in 10 weeks.

Speaking to listeners Sunday during a visit to state radio headquarters, Mr. Wen acknowledged that recent price increases have "made life more difficult" for middle- and lower-income Chinese. But, pointing to measures the leadership has taken in recent months, he said: "As it looks now, we are completely able to control the overall level of prices."

The remarks, in a session where Mr. Wen was asked repeatedly about prices, reflect the issue's political sensitivity for Beijing.

Accelerating inflation in recent months has been driven largely by increasing prices for food and housing that disproportionately affect the lower-income people Mr. Wen's government has publicly championed.

Yet the leadership is trying to balance concern over prices against a desire to avoid tightening so aggressively that it harms growth in what's expected to be the world's second biggest economy after the U.S. this year. The rate increase announced Saturday, in which the People's Bank of China increased benchmark lending and deposit rates by a quarter percentage point, followed a series of other steps targeting inflation, including price controls on certain commodities and several increases in the reserve-requirement ratio, or the share of deposits that banks must keep on reserve instead of lending. The central bank also announced an interest-rate increase on Oct. 19—its first since late 2007.

The October rate rise, also a quarter percentage point, was unexpected, and spooked global investors. Prices of stocks, commodities and emerging-markets currencies all fell amid fears that one of the world's main economic engines might decelerate.

Since then, the government has repeatedly signaled that it plans further tightening—plans the markets have at least partly digested—and economists were widely anticipating additional interest-rate increases, if not necessarily quite so soon.

"We expected a rate hike by the end of the year, though Christmas Day is something of a surprise," said Brian Jackson, China economist at the Royal Bank of Canada. He called the rise a "prudent" move, and said it signaled recognition that measures like the reserve-ratio increases were proving inadequate.

He and others expect more increases, but so far most economists aren't predicting a sharp drop in growth. China economists at J.P. Morgan Chase forecast in a note Sunday that China will raise rates three times in 2011. They also projected that China's economy will grow 9% in 2011, from an estimated 10% this year.

Many economists say China could better fight inflation by allowing its currency to appreciate, which reduces the prices of imports in local-currency terms. The yuan has gained close to 3% against the dollar since Beijing unpegged it from the U.S. currency in June. If sustained, that would equate to an annual pace of 6%. But few analysts think China's government has the stomach for faster appreciation than that because of fears it would make China's exports too pricey in dollar terms.

China's rate increases heighten the already stark contrast with the U.S. economy—a contrast that is complicating Beijing's policy choices.

Higher rates in China are meant to soak up cash in its economy by increasing the incentive to park money in bank deposits and by deterring borrowing. But they also widen the gap between returns on capital here and in the U.S., where the Federal Reserve is battling economic weakness by holding rates near zero and pumping liquidity into economy through its quantitative easing program.

That widening rate spread increases China's attraction for speculative investors to shift funds into China. Chinese authorities detest such "hot money" because it weakens their control over the economy and adds to upward pressure on the yuan. Existing capital controls make it difficult to bring funds into China, but speculators have used regulatory loopholes and other tools to bypass restrictions.

Chinese officials have openly criticized the Fed's quantitative easing program, in part because they say it burdens emerging economies with potentially excessive capital inflows that could fuel inflation.

Ting Lu, China economist for Bank of America-Merrill Lynch, said in a note that to curb hot-money inflows after the rate increase, authorities are likely to impose more capital-control measures. That also could damp any pressure to step up appreciation of the yuan that might result from such inflows, he said.

The interest-rate increase, which took effect Sunday, lifted the rate on one-year yuan loans to 5.81% from 5.56%, and on one-year yuan deposits to 2.75% from 2.50%.

China's consumer prices rose 5.1% in November from a year earlier, the biggest increase since July 2008. Food prices have largely eased in recent weeks, which could help slow the rise, but economists say increases have picked up for other products. Last week, the government raised state-set fuel prices for the second time in two months amid resurgent global crude-oil costs.

Early this month, the Communist Party's leadership group, the Politburo, announced a formal transition to "prudent" monetary policy from the "moderately loose" stance China has had during the global economic downturn. Despite that resolve, the government has acknowledged that average prices will continue trending higher, raising its official inflation target to around 4% for next year, from 3% for full-year 2010.