China's consumer prices rise for third month, signaling demand recovery

China's consumer prices rose for a third straight month in April, while producer prices extended declines, signaling an improvement in domestic demand, as Beijing navigates challenges in its bid to shore up a shaky economy.

The closely watched numbers follow better-than-expected imports data for April, suggesting a flurry of policy support measures over the past several months may be helping consumer confidence.

Consumer prices edged up 0.3% in April from a year earlier, data from the National Bureau of Statistics showed on Saturday, versus a rise of 0.1% in March and a Reuters poll forecast for an increase of 0.2%.

"Strip out food and energy prices, and the consumer inflation data suggests a comeback in demand, especially in services," said Xu Tianchen, senior economist at the Economist Intelligence Unit.

Core inflation, excluding volatile food and fuel prices, grew 0.7% in April, up from 0.6% in March.

Overall the consumer price index (CPI) rose 0.1% from the previous month, beating a forecast fall of 0.1% in the poll and reversing a drop of 1% in March.

Most China watchers say Beijing still has its work cut out, though, and the momentum might prove unsustainable, as official surveys show cooling factory and services activity, while a lengthy housing crisis shows no sign of easing, boosting the case for more policy support.

"Price hikes by utility companies is another potential driver," Xu added.

"The fiscal strains some local governments are facing affect the subsidies they receive, which could be forcing them to pass the extra cost on to households to make ends meet."

Officials are grappling with municipal debt of $13 trillion, and the State Council, or cabinet, has told heavily indebted local governments to delay or halt