BEIJING—China's consumer inflation slowed in August for a fourth straight month as prices for many foods fell, giving authorities more room to ease monetary policy to lift growth.

Prices were up 1.3% from a year earlier, the National Bureau of Statistics said Friday, slowing from July's 1.8% pace, and undershooting the median 1.6% gain forecast by 15 economists surveyed by The Wall Street Journal. It was the lowest level for the consumer-price index since October 2015.

China's producer-price index declined 0.8% in last month from a year earlier, largely in line with expectations, compared with a 1.7% drop in July. The index of prices at the factory gate has lingered in deflationary territory for over four years, though downward pressure has eased since the beginning of this year.

"In general, it's a nice combination," said Macquarie Group economist Larry Hu. "CPI is lower, while PPI is falling less quickly. This gives more room for policy easing and less [industrial] deflation."

Mr. Hu said Beijing is unlikely to reduce interest rates or cut required bank reserves immediately for fear of spurring speculation in the real-estate market and hurt highly leveraged financial institutions. But the inflation numbers provide more room to act if the economic slowdown is worse than expected, he added.

China's economy grew by 6.7% in the second quarter, a pace economists expect it to match for the year. That would be down from last year's 6.9%, the slowest annual growth rate in a quarter century. In March Beijing set the target for this year at 6.5% to 7%.

J.P. Morgan Chase & Co. said in a report that ebbing growth could prompt an interest-rate cut in the fourth quarter. China is expected to continue spending heavily on infrastructure projects to bolster the economy, it added.

China benchmark consumer-inflation measure remains well below Beijing's targeted ceiling of 3% this year. While lower prices help an economy if consumers and companies use the savings to buy and invest elsewhere, protracted declines may encourage them to delay spending to take advantage of still-lower prices in the future. That drags down growth.

So far, falling price pressure for consumers isn't a huge concern, but this could change if the index continues to fall, Mr. Hu said.

Food prices grew only anemically in August, with eggs, fruits and vegetables all down. Pork prices were up 6.4% from a year earlier, helping the subindex to maintain an overall increase—but that compares to pork's 16.1% jump in July.

"It's the hogs again," said Founder Securities Co. economist Yang Weixiao.

But lower prices can take time to filter down. "Food is becoming more and more expensive," said Hua Siheng, a 20-something employee at a state-owned company, who said his wages are stagnant so he's watching food costs carefully. "I like eating pork, but with the recent 30% price increase, I'm eating less meat," he added.

Deflationary pressure at the factory gate has eased this year; August's 0.8% drop in producer prices compared with 5.9% at the end of 2015. This is largely due to higher commodity prices; between June and late August, coal and steel prices in China increased by over 20%. A further easing of producer deflation through the end of the year is expected to bolster corporate balance sheets and profitability. Industrial profits in July were up 11% from a year earlier, accelerating from June's 5.1% increase.

Liyan Qi contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

 

(END) Dow Jones Newswires

September 09, 2016 00:35 ET (04:35 GMT)

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