By Mark Magnier

BEIJING--Chinese consumer inflation edged up in October for a second consecutive month, helped by higher food prices, though the rise was based on a comparison with particularly weak prices a year ago.

China's consumer-price index increased 2.1% last month from a year earlier compared with a 1.9% gain in September, the National Bureau of Statistics said Wednesday. The key measure of inflation matched a forecast by 14 economists surveyed by The Wall Street Journal.

China's producer-price index rose by a faster-than-expected 1.2% in October from a year earlier, compared with September's 0.1% increase. Before September's uptick, the gauge of factory prices had lingered in deflationary territory for more than four years.

Last month's inflation results were below the 3% level that Beijing has set as the upper limit of what it will tolerate this year, providing leaders with leeway to loosen monetary policy if needed to further stabilize economic growth.

But economists said they don't expect China to ease rates soon given concern that this could fuel more speculative buying in the real-estate market and worsen industrial overcapacity and already high corporate debt levels. In recent weeks, authorities have imposed property restrictions in top markets to rein in a buying frenzy.

"We're seeing quite mild inflation mainly driven by a low base, which pushes up food prices on an annualized basis," said RHB Capital economist Zhang Fan. "But I don't see them easing policy further. Their priority task is to curb the asset bubble as money flows into property and commodity markets."

The statistics bureau said the rise inOctober's consumer-inflation index was driven by higher vegetable, pork, fuel and rental prices.

Li Zhipeng, a 53-year-old security guard in Beijing, said vegetables are getting quite pricey at his local market, particularly garlic which has seen a 60% increase in the past few months and which he called "crazy expensive." His rent also has increased 50% over the past few years, he added while chatting with the owner of an outdoor fruit stand.

Mr. Li, who earns 2,500 yuan ($370) per month, said rising prices and his modest income have made him and his family opportunistic shoppers. As green vegetable prices have increased, he has switched to radishes. And he has delayed buying a new TV until Nov. 11--known as "Double 11" or "Singles Day" in China--when items are heavily discounted.

Prices at the factory gate rose last month fueled by higher commodity prices, especially steel and coal, tied to a recovering building-materials industry and to speculative buying, economists said. The end of an extended period of industrial deflation also has helped exporters' bottom lines. Industrial profit grew more than 8% year on year during the first three quarters of the year compared with a decline of 2.3% for the year-earlier period.

China is in a relative sweet spot on the inflation front, with tame consumer inflation and rising producer prices. "Prices on both consumer and industrial fronts look pretty strong to me," said Founder Securities Co. economist Yang Weixiao.

But that could falter if the housing market weakens too quickly--pushing producer prices into deflation again--or, alternately, if property prices continue to rise precipitously, complicating monetary policy. The central bank is wary of raising rates in a slowing economy fearing this could increase bad loans and push more companies into bankruptcy, economists said.

"The goldilocks of rising PPI andnot-too-high CPI is unlikely to last much longer," said Société Générale in a research note.

Liyan Qi contributed to this article.

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

(END) Dow Jones Newswires

November 08, 2016 23:26 ET (04:26 GMT)

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