China reports lower industrial output, higher inflation

Facing economic downturn due to steady fall in exports, China reported lower industrial output and higher inflation in August, while retail sales picked up slightly.

China's industrial output and fixed-asset investment continued to weaken in August as industrial value-added output expanded 8.9% year-on-year in August, down from a 9.2% growth in July, the slowest since May 2009, the National Bureau of Statistics (NBS) said.

Urban fixed-asset investment increased 20.2% year-on-year to 21.8 trillion yuan (USD 3.4 trillion) in the first eight months of the year, 0.2 percentage points slower than the growth of the January-July period.

Also China's consumer price index (CPI), a key gauge of inflation, rose two percent year-on-year in August, accelerating from a 1.8% growth in July, the NBS said.

The slight rebound was mainly driven by food price hikes as heavy rains affected vegetable supply and global grain prices went up, state run Xinhua quoted analysts as saying.

Food prices, which account for nearly one-third of the weighting in the calculation of the country's CPI, climbed 3.4% in August from a year earlier, faster than a 2.4% increase in July, the NBS said.

Vegetable prices jumped 23.8% year-on-year in August, while fruit prices surged 9.7%.

Zhang Liqun, researcher with the Development Research Centre of the central cabinet, said authorities should pay attention to preventing inflation pressure from resurfacing while easing the monetary policy to support the softening economy.

"It's easy for the prices to rebound faster than desired if we are not cautious," he said.

China's inflation rate weakened continuously to reach a 30-month low in July, as growth in the world's second largest economy cooled to 7.6% in the second quarter, the slowest since the first quarter of 2009.

However retail sales rose 13.2% year-on-year in August by 0.1 percentage points higher than the growth rate in July bringing some cheer.

"China's economy is still in the trough and this situation is likely to go on longer than expected," Liu Yuanchun, deputy head of the School of Economics at the Renmin University of China.

China looks to domestic sales increase as exports continued to fall in the recent months due to slow recovery in US and sovereign debt crisis in European Union.