China's politically sensitive inflation rate hit its highest level in nearly three years in May, the government said Tuesday, despite persistent official efforts to tame food and property costs.

The consumer price index rose 5.5 percent year-on-year in May, up from 5.3 percent in April and far above Beijing's annual target of 4.0 percent, as food prices soared following power shortages and crippling droughts in some regions.

It was the highest rate since July 2008, when the index rose 6.3 percent.

The data has fuelled expectations for further monetary tightening in the coming weeks as authorities -- anxious about inflation's potential to spark social unrest -- try to stem a flood of credit in the economy.

The world's second-largest economy is "still facing significant inflationary pressures" and must implement measures to contain prices, National Bureau of Statistics spokesman Sheng Laiyun told a news conference.

Royal Bank of Canada senior strategist Brian Jackson said another interest rate hike was likely before the end of June, which would take the number of increases to five since October, followed by another move in the third quarter.

"We expect price pressures will ease later in the year, but in the very near-term, headline measures of inflation are above Beijing's comfort level," Jackson said in a research note.

"This suggests that more rate hikes are likely over the next few months ... we also expect Beijing will tolerate further gains in the yuan against the dollar as part of its efforts to curb inflation."

Beijing has allowed the yuan to strengthen more than five percent against the greenback since vowing a year ago to let it trade more freely, following intense international pressure for a stronger currency.

IHS Global Insight analyst Alistair Thornton agreed with Jackson, but said the rate hike could be pushed back until July due to worsening inflation.

Investors reacted positively to the data, with Shanghai shares rising 1.01 percent to 2,727.57 by midday as a number of analysts said the figures showed China was not heading for a hard landing.

Output from the country's thousands of workshops and factories rose 13.3 percent from a year earlier in May, slightly slower than the 13.4 percent in April amid electricity shortages and a government clampdown on bank lending.

Fixed asset investment for the January-May period rose 25.8 percent on year, up from 25.4 percent in the first four months of the year.

Retail sales rose 16.9 percent year-on-year in May.

Apart from industrial output, there were other signs the Asian powerhouse slowed in May -- year-on-year auto sales fell for the second straight month, new loans dropped more than expected and manufacturing activity lost steam.

Some experts are concerned that authorities may have gone too far in trying to slow the economy, which grew a blistering 9.7 percent in the first quarter, and the tightening measures could trigger a hard landing.

Beyond the interest rate hikes, Beijing has repeatedly raised the amount of money that banks must keep in reserve to stem credit growth.

But Bank of America-Merrill Lynch economist Lu Ting said "a hard landing is a low-probability event" and the robust fixed-asset investment figure may ease concerns about a "coming collapse" in China.

While Jackson said the data showed "growth is moderating in response to recent policy measures" but there was "little to suggest that Beijing needs to worry about a hard landing in coming months".

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