Sept CPI Rise Hits 7-month High

In September, the producer price index, an indicator of industrial production inflation, declined 1.3 percent year-on-year, compared with a 1.6 percent decrease in August, thanks to moderate improvement in domestic demand, the NBS said.

"With PPI having remained in negative territory for 19 consecutive months, upstream price pressure will continue to be manageable," said Ma Xiaoping, an HSBC economist.

JPMorgan Chase & Co forecast that the full-year CPI is likely to stand at 2.7 percent, much lower than the government's target of 3.5 percent.

Zhu Haibin, chief economist in China at JPMorgan, said, "The relatively benign inflation dynamics suggest that stabilizing growth and economic reform remain the priorities for policymakers in the near term."

While September CPI rose above 3 percent, it is unlikely to trigger changes in monetary policy, said Zhu.

"We expect no change in benchmark interest rates and the reserve requirement ratio throughout the year, and credit growth will moderate further," he said.

Because of the rebound of domestic and external demand, the recent economic indicators including industrial output, fixed-assets investment and the manufacturing purchasing managers' index all showed positive signals.

Economists said that China's economic growth is expected to accelerate slightly in the third quarter. They predicted that GDP growth may rebound to 7.6 to 7.8 percent in the third quarter, up from 7.5 percent in the second.

Ding Zhijie, dean of the School of Banking and Finance at the University of International Business and Economics, said that although the economy has improved in the short term, the long-term challenges require the government to further improve structural reform.

"Credit expansion is no longer efficient to support sustainable economic growth. The government should focus on eliminating excess industrial production capacity and lower the threshold for private capital to enter the service industry, which can release new economic growth energy," Ding said.

Duncan Freeman, a senior research fellow at Brussels Institute of Contemporary China Studies, said the latest CPI figure shows a degree of volatility, and may not indicate a trend for higher inflation.

But the PPI figure reflects a problem, suggesting a continued imbalance between insufficient demand and overcapacity in many sectors of the economy, he said.

Kamel Mellahi, a professor of strategic management at Warwick Business School in the UK, said one should not read too much into the latest CPI figure.

"The increase in CPI reflects, to a very large extent, recent bad weather that decreased food inventory, which subsequently drove food prices up. We witnessed the same thing back in February when CPI jumped to a 10-month high because of seasonal spending during the Lunar New Year."