China's inflation rate accelerated to its highest level in more than 11 years in January, rising to a year-over-year rate of 7.1%, up from a 6.5% pace in December, China's National Bureau of Statistics announced Tuesday.

The NBS said food prices surged 18.2% in the year-over-year period, as record snow storms blocked food transport, forcing prices higher.

Officials said the food shortages had eased, but that consumer prices were likely to continue to rise due to higher wage costs and higher costs for coal and other industrial materials.

China's government is attempting to cool its economy, in part to take pressure off wholesale prices, particularly commodities, but also to lower retail inflation. China's economy grew 11.4% in 2007. Many economists expect 8.5-9.5% GDP growth in 2008.

At issue: fixed yuan

China has primarily used interest rate increases to attempt to slow its surging economy and lower inflation. Economist David H. Wang told BloggingStocks Tuesday the interest rate increases are helping, but ultimately China may be forced to let its currency, the yuan, appreciate somewhat to lower inflation.

"One of the downsides of having the yuan's rate fixed to the dollar is that when foreign producers increase prices to compensate for a lower dollar, inflation rises in China," Wang said. "When inflation hits the dollar or the U.S., it hits China too, and China is seeing just how hard it is to contain inflation under this exchange rate framework. China is not going to let its currency float right now, but Chinese officials may allow a slightly faster appreciation rate, to help it contain inflation."

China keeps the value of the yuan in a tight band trading range, which is presently at/near 7.1574 yuan to the dollar. The rate, which is artificially low -- or lower than it would be if it were determined by market forces -- keeps the cost of China's exports low, but also increases domestic inflation and has other economic effects.

Wang said he expects China's inflation to hit 8.0-8.5% in 2008, before decelerating to about 7% in 2009.