That was the slowest monthly rise since June of last year. (That's roughly what ours is at the moment. If China's rate continues to fall it will be well below the 5% annual rate expected by the Reserve Bank for this quarter and for the December three months.)
The August outcome was much less than the 5.3% forecast by economists in a Bloomberg survey, and under the level suggested a week ago by an economist who forecast that consumer inflation would be less than 6%.
The news was liked by the Chinese stockmarket which rose for a second day in a row, an unlikely event in recent months as the market has fallen 60%. In fact China's strength was also contrary to the trend across the region where stocks were easier for a second successive day.
But another report showed that China's export performance continues to run at levels under 2007's record levels. According to media reports, China's official Xinhua newsagency reported that Chinese exports rose 21.1% last month, compared with the August 2007 figures. That was down from July's rise of 26.9%.
Though the export figures in August were lower than in Julys, they were above market estimates in another survey by Bloomberg.
Reuters reported that China's trade surplus fell 6.2% in the first eight months to $US152 billion, which is still a very big figure.
But the important news was with the inflation report, and it's clear that falling food costs accounted for much of the improvement especially lower meat prices.
That's not to say costs are not a problem: factory gate or producer prices rose at an annual rate of 10.1% in August, up on the 10% of July, but with oil and some commodity prices falling, economists claim this wholesale price inflation should start easing.
But the cost of thermal coal for power plants, coking coal and iron ore for the steel sector won't fall until next April at the earliest, seeing there are high priced 12 month contracts in place with exporters in the main.
Brazil iron ore giant, CVRD is seeking price parity with Australian exporters (and is trying the same tactic with Japanese mills, all of whom settled for rises smaller than the average 86.5% increase with Rio Tinto and BHP Billion).
The bigger rise for Australia was to compensate Rio and BHP for being closer to China and for China having to use fewer ships to transport the same amount of ore than from Brazil.
CVRD says a 40% drop in freight rates since May means China can afford to pay it price parity with the Australian prices.
But consumer inflation (which is more dangerous to the ruling Communist Party than wholesale inflation in business) has now fallen for four straight months as food costs have retreated from the very high levels of 2006 and early 2007.
February's 8.7% annual rate was the fastest in 12 years, but that was more down to the costs of the bad winter storms in January that forced up the price of power, oil and other energy products and saw food prices rise because of shortages caused by transportation snarls from those snow storms.
Food prices rose at an annual 10.3% in August from August last year, down from the 14.1% rate in July.
Non-food prices increased at an annual 2.1% rate in August, unchanged from July, a sign that price competition outside of food remains intense. Grain prices have eased because of a solid harvest.
Due to August 2007 seeing a sharp rise in food costs, the comparison looks a little better than at first glance but the trend towards easing prices is now firmly established.
The solid pace of growth in factory and property spending continued with urban fixed investment up 27.4% on August of last year and the annual rate of 27.3% in July.
China grew at an annual rate of 10.1% in the June quarter, but that was a slowing for a fourth straight quarter as export growth eased. That rate was down on the 11.9% for all of 2007 and more than 12% in the June quarter of last year.
The government relaxed lending restrictions in July, before the Olympics, and lifted loan quotas for national and regional lenders by 5% to 10%.
The once rising currency (the Yuan) has only edged up 0.2% so far this quarter after rising 6.5% in the first half of the year. The government has slowed the rise to limit the impact on exporters.
Export taxes have already been cut on shipments of low value textiles and garments, on top of easing the lending restrictions and trying to direct the higher lending rates to small and medium businesses.
There are local media reports of a $US60 billion spending package and tax cuts being worked on by the central government, with much of that to concentrate on the rebuilding of Sichuan's earthquake damaged regions.
But steelmaker report easing growth in demand for their products from the car, appliance and construction industries. Rebuilding Sichuan would mop up much of that emerging surplus capacity.
