China Aug inflation edges up, but producer prices tumble most in 6 years

BEIJING (Reuters) - China's consumer inflation in August edged up more than expected from a year earlier, but producer prices fell for the 42nd straight month in the latest sign that deflation remains a significant risk for the world's second-largest economy.

The consumer price index (CPI) rose 2.0 percent, the National Bureau of Statistics said on Thursday, but much of the increase appeared due to soaring food prices, not an improvement in economic activity.

The producer price index (PPI), which represents manufacturers' selling prices, fell 5.9 percent from a year earlier, much worse than market expectations of a 5.5 percent decline and compared with a 5.4 percent drop in July.

The PPI decline was the sharpest since the depths of the global financial crisis in 2009.

Analysts polled by Reuters had predicted August consumer prices would rise 1.8 percent from a year earlier, compared with 1.6 percent in July.

The consumer inflation reading remained well below Beijing's 3 percent target for the year, giving policymakers plenty of room to ease policy further to support the cooling economy.

Other data from China in coming weeks is likely to point to further weakness in the economy, reinforcing expectations that Beijing needs to roll out fresh stimulus measures and keeping global financial markets on edge.

Imports fell much more than expected in August and exports also contracted, data earlier this week showed.

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 Aug. 11 and halt a stock market rout that has seen the country's share indexes plunge 40 percent since mid-June.

(Reporting by Winni Zhou and Pete Sweeney; Editing by Kim Coghill)