China's annual inflation rate fell sharply in October to 5.5 per cent in a further pullback from July's three-year peak, giving Beijing more room to fine tune policy to help an economy feeling the chill of a global slowdown.

Other data, including figures showing industrial output in October grew at its weakest annual pace in a year, provided the latest evidence of a modest slowdown in the world's second-biggest economy.

Inflation fell from 6.1 per cent in September and marked the third straight decline since a peak of 6.5 per cent in July, bolstering expectations that price pressures were on a solid downtrend.

Premier Wen Jiabao said prices had fallen further since October, adding to the view that policymakers will edge towards more pro-growth policies, although inflation is still too high to expect a cut in interest rates.

"As inflation worries ease, the room for fine-tuning monetary tightening is getting bigger," said Ting Lu, an economist at Bank of America/Merrill Lynch in Hong Kong. "Policymakers might still put taming inflation as a top priority, but we will see policies to be increasingly nudged towards pro-growth.?

The inflation figures soothed investors concerns about a sharp slowdown in China, supporting oil prices and underpinning Chinese shares, although market direction is being largely set by events in Europe.

Producer price inflation also showed a marked slowdown to 5.0 per cent in October, a one-year low, from 6.5 per cent in September.

Indeed, Mr Wen suggested prices had continued to fall. "Since October, overall domestic prices have been falling noticeably," Mr Wen was quoted as saying by a government website. "Prices of pork and eggs have fallen, but prices of fruit, dairy products, beef and mutton remain at high levels," he said.

Industrial output rose in October by 13.2 per cent from a year earlier, slightly below expectations for a 13.4 per cent rise and the weakest pace since October 2010, suggesting factories were bearing the brunt of the economic slowdown.

Retail sales rose 17.2 per cent, also slightly below expectations for a 17.4 per cent rise. Fixed asset investment in January through October increased 24.9 per cent from the same year-earlier period, topping expectations.

China's leaders have begun talking in recent weeks about "fine tuning" macroeconomic policy to maintain economic growth, which slowed in the third quarter to 9.1 per cent, its weakest in more than two years.

Reuters