As China's economy is back on track, growth in both Consumer and Producer Price Indices has returned to positive territory after months of decline. But the increases have fueled concern over inflation. Will inflation be a problem for the Chinese economy in 2010? Do we need to keep an eye on it? Economists seem to have different opinions...

It seems that inflation has re-emerged as something to watch. China's CPI growth in December returned to positive figures after 9 months of decline.

Inflation at the factory gate, measured by the Producer Price Index also went up for the first time last year. The positivity is putting inflation back under the spotlight.

Some economists are playing down the concerns, saying inflation shouldn't be a problem in the short term.

Fan Gang, Director of National Economics Research Institute, said, "It's not likely for China and even the world to witness a high level of inflation, as over capacity will be a long term trend. Besides, food prices both at home and abroad are stable. The real problem for China now are asset bubbles, especially those in the property and financial assets."

Fan Gang is echoed by the Chief Economist of Everbright Securities, among others. Pan Xiangdong says sky-high bank loans may not necessarily add pressure to inflation. He adds that lending has mainly flowed into two sectors -- public establishments and the property market.

Despite surging housing prices, costs of other commodities haven't climbed significantly, while the stock market is also staying at a reasonable level. Therefore, Pan Xiangdong also believes there is no need for concern about inflation.

Many optimists also think China's CPI growth will stand below 4 percent in 2010.

However, some don't agree. President of Yanjing Overseas Chinese University, Hua Sheng, says inflation pressure will increase during the second half of this year, with the CPI growth rate topping 4 percent.

He argues that expansion of China's money supply and bank lending in 2009 outpaced the US. As the government has promised to maintain its stimulus policies, money and lending growth will continue this year although at a slower pace. This will in turn further push up prices.

Some proponents also say the impact of inflation will be bigger than expected. Despite consecutive harvests in the agricultural sector, food prices have been on the rise over the past months. And the market is already full of expectations on inflation.