Bad news from the consumer price inflation numbers released in China on December 11. Inflation not only climbed in November from October’s already too-high 4.4% annual rate but jumped to a 5.1% pace. That’s well above the 4.7% rate that economists surveyed by Bloomberg had projected before the release of this data.

So now stock markets in China—and in pretty much every other emerging economy since they move in lockstep with China—get to fret over whether or not this data is bad enough to make the People’s  Bank of China raise its benchmark interest rates for the second time since October. Before the October increase, China’s central bank hadn’t raised interest rates since December 2007.

Or not.

Today, December 13, China’s markets were feeling very relaxed. They concluded that since the People’s Bank had just raised bank reserve requirements for the sixth time in 2010 last week and the Beijing leadership meeting over the weekend saw fit to release just a vague promise to keep a vigilant watch on inflation, an interest rate increase was off the table for a while. The People’s Bank will want to see if an increase in the bank reserve requirement to 18.5% would slow loan and money supply growth, traders seem to feel, and if price controls on food, the fastest growing part of inflation and the most painful to the average Chinese family could slow the rate of increase in prices. (Food price inflation was 11.7% in November from November 2009.)

Despite the 2.9% jump in the Shanghai Composite stock index today, it’s hard to see how the central bank can stay on hold much longer. Inflation is out of control and nothing the bank has done so far has slowed the economy. In fact in November economic activity actually grew at a faster rate. Industrial output increased at a 13.3% pace. Retail sales gained 18.7%.

Interest rates at current levels are feeding into the inflation problem. With inflation at 5.1%, the current 2.5% rate for bank deposits means that savers are losing money on every dollar they keep in a bank. Far better to put it into stocks or real estate—or spend it. The lending rate of just 5.56% means that with a 5.1% inflation rate borrowing money is almost free.

Money supply, measured by M2, climbed by 19.5% in November. That’s the fastest rate of increase in six months.

I expect to see at least one more round of price controls—with wider scope and with more teeth. And then for the People’s Bank to move on rates.