China‘s consumer inflation rose to a seven-month high last month as prolonged weakness in food prices subsided and commodities prices rebounded.

August’s stronger, yet still moderate, inflation is a good sign for the Chinese economy, economists said, as improved demand for consumer and industrial products point to better profits ahead for industrial firms.

China’s consumer-price index increased 1.8% in August from a year earlier, compared with a 1.4% gain in July, the National Bureau of Statistics said Saturday. The key inflation reading outpaced a 1.6% gain forecast by economists polled by The Wall Street Journal and is well below policy makers’ inflation ceiling of about 3%.

“Today’s data show that domestic demand remained solid and economic growth momentum is still steady,” said Liu Xuezhi, an economist at Bank of Communications.

Food prices, which have been declining for seven straight months, edged down 0.2% on year, after dropping 1.1% in July. Consumers paid more for fresh vegetables and eggs last month.

Pork prices, the main reason behind this year’s food-price weakness, dropped at a smaller pace last month, declining 13.4% in August from a year earlier and shaving nearly 0.4 percentage point off the headline CPI. In July, pork prices dropped 15.5%.

Prices for goods other than food grew 2.3% on year, compared with 2.0% on-year growth in July. That faster nonfood inflation was partly due to a pickup of industrial prices, said Mr. Liu.

Core consumer-price inflation, with food and energy prices stripped out, rose 2.2% last month on year, a tick up from July’s 2.1%. The core CPI has been holding steady at a little above 2% since March.

The producer-price index climbed to a four-month high of 6.3% in August, compared with a 5.5% on-year increase in July. The reading for factory-gate prices was higher than a median forecast increase of 5.7% by the economists and was boosted by increases in prices for coal, oil and gas and steel and other metals.

A government effort to reduce industrial capacity and to enforce environmental regulations have spurred expectations that prices for steel and other metal products will continue to rise, said Yang Weixiao, an economist at Founder Securities.

The industrial-price inflation will probably ease to about 3.5% toward the end of the year as factories increase production and as calculations factor in higher prices late last year, Mr. Yang said.

“Inflation rebound should be temporary and not strong enough to cause the central bank to waiver from its current stance,” he said. The bank this year, Mr. Yang said, is focusing on lowering debt levels and other risks in the financial sector.

Liyan Qi contributed to this article.

Dow Jones Newswires

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