China's annual rate of consumer inflation ticked up to 2.0 percent in August from July's 30-month low of 1.8 percent, official data showed on Sunday, suggesting that room to ease monetary policy to shore up growth may be narrowing.
Economists polled by Reuters had forecast inflation to pick up to 2.0 percent in August.
Month on month, however, inflation was a touch ahead of forecasts, up 0.6 percent in August versus July. Analysts had anticipated a rise of 0.5 percent. Food inflation was up 3.4 percent on a year ago while non-food prices rose 1.4 percent.
"Inflation is coming back quickly. Together with rising home prices, it will limit the scope for further policy relaxation," said Dong Xian'an, economist with Peking First Advisory.
Separately, the National Bureau of Statistics said China's producer price index dropped 3.5 percent in August from a year earlier, which compared to forecasts for a 3.3 percent decline.
It marked the sixth straight month of producer price deflation, hurting corporate profits.
Investors widely expected the central bank to ease policy further, having cut interest rates twice since June and trimmed banks' required reserves three times since last November.
But a seeming recent preference for using money market operations over interest rates to boost liquidity conditions in the economy is seen as a sign of the policy dilemma facing a central bank and a government super hawkish on inflation and wary of aggressive rate cuts.
China's economic growth has slowed for six straight quarters and analysts expect the trend to extend to a seventh when third quarter GDP data for 2012 is published. Growth in Q2 was 7.6 percent, its slackest in more than three years.
Recent data have cemented views that growth for the full year will be its lowest since 1999 and could fall below 8 percent.
Officials last week revealed they had given the green light to 60 infrastructure projects worth more than $150 billion, as Beijing seeks to energies the economy. The announcement fuelled investor hopes the world's growth engine may get a lift in the fourth quarter of the year and beyond.
China's powerful economic planning body, the National Development and Reform Commission, announced approvals for projects that analysts estimate total more than 1 trillion yuan ($157 billion), roughly a quarter of the total size of the massive stimulus package unleashed in response to the global financial crisis in 2008.
Chinese President Hu Jintao urged Asia-Pacific nations on Saturday to speed up infrastructure development to help face the "grave challenges" from the global economy.
Fixed asset investment contributed 3.9 percentage points to China's 7.6 percent Q2 growth.
(Editing by Sanjeev Miglani)