Domestic experts believe PPI inflation has reached a peak and will decline, because the prices of energy and raw materials have been dropping since July. For instance, the price of international crude oil futures dropped to around $110 a barrel in September from the record high of $147 on July 11.

Merrill Lynch cited a few policy implications for the changes in the CPI and PPI. It said the government would likely raise utility (especially power) prices again, but also would have more room to stimulate the economy, including easing its credit-tightening measures. The investment bank giant expects no interest rate or reserve requirement ratio hikes this year.

Merrill Lynch also noted that there has been less pressure for the renminbi to appreciate, because the government does not believe the situation is as urgent as previously when it allowed the renminbi's appreciation to dampen imported inflation. It said a slow appreciation of the renminbi against the U.S. dollar would likely discourage the inflow of hot money, which would lead to less excess liquidity.

Trade surplus up 14 percent

Decelerated import growth led to China's record-high single month trade surplus of up to $28.7 billion in August, a 14-percent increase year on year. But the overall trade surplus in the first eight months dropped 6.2 percent.

The August trade figures reversed the trend of a surplus slowdown.

China imported $106.2 billion worth of goods in August, up 23 percent year on year, and exported $134.9 billion, up 21.1 percent year on year, according to the General Administration of Customs.

Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, said the August figures were not bad and that people might have been overly concerned about the close of export companies.

Export growth was in line with experts' expectations, but plummeting import growth stimulated market worries about a big slump in China's demand amid the global economic slowdown.

High prices were one reason for the slowdown in imports. Merrill Lynch said year-on-year price increases of big-ticket commodity imports fell to some extent. For instance, the import price of crude oil rose 81 percent year on year in August, compared with 85 percent in July. Another reason is a slowdown in the import growth of the processing trade sector. Because China is gradually limiting its export of low value-added goods, the growth of those intermediate goods imported for processing and re-export fell sharply to 2.9 percent year on year in August from 14.7 percent in the first half.

FAI up 27.4 percent

China's urban fixed-asset investment (FAI) totaled 8.5 trillion yuan ($1.2 trillion) in the first eight months, up 27.4 percent from the same period last year, the NBS said.

The growth rate was 0.1 percentage point higher than in the January-July period, or 0.7 percentage points higher than the year-earlier level.