Beijing has in recent years been battling sluggish domestic spending, dragged down by a prolonged slump in the country's vast property market as pressure on exports mounts.

The consumer price index -- a key measure of inflation -- dropped 0.4 percent year-on-year in August, according to data released by China's National Bureau of Statistics (NBS).

The reading was lower than the 0.2-percent fall Bloomberg forecast based on a survey of economists.

It also marked the the steepest decline since February's drop of 0.7 percent.

Factory gate prices also dropped in August, the NBS said Wednesday, but at a slower rate than recent months.

The producer price index (PPI), which measures the prices of goods before they enter wholesale or distribution, fell 2.9 percent last month.

The latest PPI reading improved from the 3.6-percent fall recorded in July, in line with a Bloomberg forecast.