China's August Inflation Rate Rebounds To 2% As Economy Reels Under Downward Pressure

A slowdown in exports, a slump in the earnings of domestic companies and surging food prices cast a downward pressure on the world's second-biggest economy in August as the China's National Bureau of Statistics reported Sunday that the Consumer Price Index rose 2 percent year-on-year in the month, rising from 1.8 percent growth in July.

The rising inflation seemed to be driven mainly by a hike in food prices from a rise in global grain prices and as heavy rains that affected vegetable production, the state news service Xinhua reported.

The Producer Price Index that measures inflation at the wholesale level slipped 3.5 percent year-on-year, after a 2.9 percent decline in July. The decline in PPI is in line with analysts' estimate as Wei Yao, an analyst with Societe Generale, told Business Insider that the decline would be another indication of China's massive excess capacity that will take years to get eliminated.

This is the sixth straight month that China's PPI has fallen since March, the longest such stretch since December 2009, Xinhua noted.

On a month-on-month basis, the CPI grew 0.6 percent in August and the PPI moved down 0.5 percent.

Retail sales in August rose 13.2 percent year-on-year, in line with analyst forecasts reported in Reuters' poll. The trend of spending in 2012 had been tracking lower, Reuters reported, adding that the data may bolster market expectations that China would adjust policies to lift an economy caught in soft period of growth in three years.

Industrial output slowed to 8.9 percent in August in comparison to the same month last year. This was the weakest showing since May 2009 and below market expectations as analysts had forecast the industrial output to grow 9.1 percent in August from a year ago, Reuters added.

Fixed asset investment, which accounts for half of China's net economic, growth rose 20.2 percent between January and August in comparison to the same period last year. This was just below analysts' expectation of 20.4 percent expansion, Reuters stated.

China is to report export and import figures Monday as weak domestic demand owing to the slow new orders and anemic growth in two of its largest export markets -- Europe and the United States -- have led the analysts to peg rise in August exports to 2.9 percent year-on-year.

Business Insider noted that Bloomberg analysts' consensus on imports is pegged at 3.5 percent growth year-on-year and the trade balance is likely to come down to $19.5 billion. The Chinese government is likely to release the new loan and money supply numbers later this week.