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With consumer price inflation rising to 2.8% in April, real interest rates have moved further into negative territory: China's interest rate on deposits is currently 2.25%. More inflation is in the pipeline. The producer price index rose 6.8% year-to-year in April, up from 5.9% year-to-year in March: Higher costs for manufacturers should eventually feed through to consumers.

The latest housing market data adds to fears of overheating, with prices up 12.8% year-to-year across 70 of China's larger cities. New bank lending was up too, with $113.3 billion more loans pumped into the economy in April—back to around the average monthly level during 2009's credit bonanza.

Against this backdrop, Beijing's tightening measures to date are inadequate. For sure, some have had little time to work, including last month's restrictions on home buying and a recent increase in the percentage of deposits banks must place with the central bank.

The danger is that policy makers will wait too long to take more decisive action, looking for totemic moments such as inflation rising above the 3% mark rather than acting sooner to prevent even more rapid price rises. Certainly, raising interest rates is complicated in China by fears of hot money inflows as the differential between Chinese and U.S. interest rates widens.

But markets are clearly expecting some action, though recent volatility indicates uncertainty over the timing. Shares in Shanghai slid nearly 2% Tuesday, hitting their lowest mark in nearly a year, on expectations Beijing can't resist tightening for much longer.

The time for those expectations to be fulfilled has arrived.

Write to Andrew Peaple at