China's headline consumer price index fell 0.4 percent on the year in August after no change in July, and was flat on the month after increasing 0.4 percent previously. Inflation has now ben in negative territory for five of the last seven months. Food prices drove the sharper fall in the headline index, down 4.3 percent on the year after dropping 1.6 percent previously, but this was offset by price increases for non-food items, with core inflation increasing slightly from 0.8 percent to 0.9 percent. This is the strongest core inflation in more than two years. Producer price inflation data also published today showed ongoing weakness in price pressures.

Flagging demand is seeing inflation go negative again, not a desirable scenario for the PBOC. The consensus looks for CPI down 0.2 percent on year in August after a flat reading in July.

Consumer Price Index (CPI) is an index that measures changes over time in the price level of consumer goods and services purchased by residents, which reflects the overall changes in price level.

Consumer prices account for a majority of overall inflation, which is carefully monitored by investors worldwide. Investors worldwide monitor Chinese price changes closely. A pickup in inflation could mean an increase in interest rates is in the offing from the People's Bank of China while an easing could mean looser monetary policy. The monthly CPI is broken down by 8 categories with more detail available on the following day including aggregate information by urban and rural areas and provinces.

The CPI measures the change in the level of prices for a specified basket of goods and services normally purchased by urban and rural residents. Approximately 226 areas throughout the country are covered, including 80 counties and 146 cities. The current CPI is an annually chained Laspeyres price index and has been available since 2001. From 1978 to 2000, the index was compiled using current year weights for most items.