“The change in PPI is very worrying,” said Li Huiyong, an economist at Shenyin & Wanguo Securities.  

“It could affect corporate profitability, which in turn could affect consumption and the economy. We must step up policy support.”

The consumer price index (CPI) rose 2 per cent from a year earlier to a one-year high, the National Bureau of Statistics said, but the gain was largely because of soaring food prices, and not any improvement in economic activity.

Analysts polled by Reuters had predicted the CPI would rise 1.8 per cent, compared with 1.6 per cent posted in July.

Non-food inflation remained subdued at 1.1 per cent –unchanged from July.

“The risk for China is still deflation, not inflation. PPI deflation will eventually filter down to affect CPI, and aggregate demand will continue to be weak,” said Kevin Lai, chief economist for Asia, excluding Japan, at Daiwa,  adding that his firm had just cut its 2016 CPI forecast to minus 0.5 per cent from 0.5 per cent.

“In addition, all the capital outflows [as a result of the slowing economy] will force the People’s Bank of China t continue purchasing yuan, which is hugely destructive to the monetary base,” he said.

Continuously falling producer prices are eating into profits at many Chinese companies and raising the relative burden of their debts.

Official and private factory surveys last week also showed manufacturers laid off workers at a faster rate last month as their order books shrank.

The central bank has cut interest rates five times since November and more reductions are expected in the coming months, but many economists believe the real rates are still too high, discouraging new investment.

Economists at ANZ said further policy easing was needed soon to head off the risk of a vicious cycle of slower growth and deflation.

They expect the central bank to cut banks’ reserve requirements (RRR) by another 50 basis points by year-end.

Data earlier this week showed imports tumbled more than expected in August while exports shrank again, pointing to persistently weak demand both at home and abroad.

Other data from China this week – including industrial output and investment on Sunday – are likely to be downbeat, keeping financial markets on edge.

Fears of a China-led global slowdown have grown in recent weeks after a series of grim factory activity surveys.

The government is also still struggling to stabilise the yuan after its surprise devaluation of the currency on August 11 and halt a stock market rout that has seen the country’s share indexes plunge 40 per cent since mid-June.

Analysts said weak data over the summer was putting Beijing’s official 7 per cent growth target for this year at risk.

That level would mark China’s weakest expansion in a quarter of a century, but some economists believe current growth levels are already much weaker than official numbers suggest.

China’s imports shrank far more than expected in August, falling for the 10th straight month and adding to global investors’ concerns that the world’s second-largest economy may be slowing more sharply than earlier expected.

Exports in August dropped 5.5 per cent from a year earlier, but improving from an 8.3 per cent drop in July.

Wang Dongtang,  deputy director-general for foreign trade at the Ministry of Commerce,  was quoted by Xinhua on Thursday as saying that China’s exports would see positive growth this year while the decline in imports would ease.

Wang added that the fundamentals of China’s foreign trade had not changed.

Xu Shaoshi,  the chairman of the National Development and Reform Commission,  said on Wednesday that China’s economic fundamentals were healthy while still facing relatively large downward pressure.

Separately, the finance ministry said on Tuesday that it would strengthen fiscal policy, boost infrastructure spending and speed up reforms to support the economy.