Inflation in China jumped sharply last month, increasing the pressure on the government to begin raising interest rates and allow the renminbi to rise against the US dollar.

Consumer prices rose by 2.7 per cent in February from a year ago, well above January’s 1.5 per cent increase and close to the 3 per cent ceiling that Premier Wen Jiabao set for this year in his speech to the National People’s Congress.

Industrial production also accelerated, increasing by 20.7 per cent for the first two months of 2010 over the year before. The figure came in above analysts’ forecasts and the 18.5 per cent increase recorded in December. Factory-gate prices climbed 5.4 per cent in February against 4.3 per cent the month before.

The latest jumps in inflation and industrial output follow a bigger-than-expected increase in exports last month and will add to fears that the Chinese economy runs the risk of overheating as a result of the massive stimulus measures introduced last year.

Helen Qiao and Yu Song at Goldman Sachs on Thursday said the new figures showed the government needed to take “more decisive tightening measures” in order to prevent the economy from overheating.

“The data, along with the stronger-than-expected exports data ... suggest that overall activity growth is accelerating on the back of the renewed credit expansion since the start of 2010 and on the improving external economic environment,” they said in a note. Such a high level of activity would likely increase inflationary pressures in the coming months, they added.

New bank loans reached Rmb700bn ($103bn) last month, down from the Rmb1,400bn in January but above forecasts.

Because of the week-long Chinese new year holiday, which was in February this year and January the year before, Beijing released some of the figures on a two-month basis in order to reduce distortions.

Retail sales grew in line with forecasts, rising 17.9 per cent year-on-year in January and February, up from 15.8 per cent in December, while fixed asset investment surged 26.6 per cent in the first two months of the year, from 20.5 per cent in December.

The authorities have already taken some mild measures to tighten monetary policy, raising bank reserve requirements twice since the start of the year. They will now be under pressure to take bolder steps.

Zhou Xiaochuan, head of the central bank, raised the prospect at the weekend of China abandoning its effective peg to the US dollar which has been in place since mid-2008, when he described the current policy as a “special” measure to allow China to weather the international crisis. However, he gave no hint about the timing of such a move, saying only that it would happen “sooner or later”.

China could start to raise interest rates to try and cool its economy. Officials however fear this could prompt a big inflow of capital if China moves well before other major economies begin to tighten monetary policy.