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By Stella Qiu and Elias Glenn
On a month-on-month basis, the PPI rose 0.8 percent in December.
The data support the view that a slowdown in the world's second-biggest economy has started to take hold in the last few months.
This follows a government crackdown on smog in the heavily industrialised northern provinces, which has hit demand for raw materials, and continued curbs on the housing market, which have weighed on property investment.
Raw material prices rose 8.1 percent in December year-on-year, compared with 9.7 percent in November, data from the statistics bureau showed.
China's industrial firms reported seven-month low earnings for November as demand and producer price gains eased, adding more pressure on companies saddled with debt.
However, production curbs at factories have triggered fears of supply shortages, giving a major boost to iron ore and steel futures prices, helping to offset tepid demand during winter months as construction activities slow.
China last year also kicked off a sweeping campaign to switch millions of households and thousands of businesses from coal to natural gas in north China, part of long-running efforts to clean the region's notoriously thick smog, sparking an unprecedented rally in natural gas prices nationwide due to gas shortages.
China's consumer inflation accelerated less than expected to 1.8 percent in December from 1.7 percent previously.
The consumer price index (CPI) had been expected to edge up to 1.9 percent on an annual basis.
Food price inflation declined 0.4 percent in December after falling 1.1 percent in November.
Non-food price inflation rose 2.4 percent from a year earlier in December, compared with 2.5 percent in November.
The world's second-biggest economy is expected to have clocked growth of 6.8 percent in 2017, up slightly from the previous year, supported by a construction boom and robust exports.
(Additional reporting by Lusha Zhang in Beijing; Editing by Sam Holmes)