A flurry of data on Wednesday showed that China’s factories are bearing the brunt of a modest economic slowdown even as consumer spending and investment in assets such as roads and other infrastructure remain resilient.

China’s annual inflation rate fell to 5.5 percent in October from September’s 6.1 percent — the biggest drop in the annual rate from one month to the next since February 2009 — and a further pullback from July’s three-year peak of 6.5 percent.

Premier Wen Jiabao said prices had fallen further since October, adding to the view that the State Council will start to favor more pro-growth policies, although inflation is still too high to expect a quick cut in interest rates from the People’s Bank of China (PBOC).

“All of this suggests that the balance of risk for the PBOC and State Council is likely shifting to growth and away from inflation,” Tim Condon, head of Asian economic research at ING in Singapore, said.

“I don’t have any (easing) in my forecast horizon. A required reserve ratio cut is a possibility, but I expect that they would continue with these fine-tuning measures.”

A senior official from the country’s top economic planning agency signaled caution ahead, saying inflation was likely to stay high in coming months.

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 percent, its weakest in more than two years.

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

The 5.5 percent rise in the consumer price index in the year to September was in line with expectations from a Reuters poll.

Producer price inflation also showed a marked slowdown to 5.0 percent in October, a one-year low, from 6.5 percent in September. The median of a Reuters poll had forecast an October reading of 5.7 percent.

Bank of America/Merrill Lynch economist, Ting Lu, said the sets of figures suggested his forecast that consumer inflation would drop to 4.6 percent in December may now be too high.

FINE TUNING

Premier Wen suggested prices had continued to fall.

“Since October, overall domestic prices have been falling noticeably,” 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.”

But Zhou Wangjun, a senior official at the National Development and Reform Commission, saw inflation staying high and said it was too early for Beijing to relax policy.

“We will still maintain the prudent monetary policy and control the amount of money in circulation,” Zhou said, adding that the government will boost supplies of farm products to help put a lid on price rises.

Industrial output rose in October by 13.2 percent from a year earlier, slightly below expectations for a 13.4 percent rise and the weakest pace since October 2010.

Government officials have expressed concern about weakening external demand for goods from China’s factories, even though the sector is on track to expand by an annual 11 percent this year — in line with official targets.

Exports were a net drag on China’s economic growth in the first nine months of this year as the sector felt the chill of a weak global market. October trade figures are due for release on Thursday.

Retail sales rose 17.2 percent, also slightly below expectations for a 17.4 percent rise, but maintaining a steady pace of growth.

Fixed-asset investment in January through October increased 24.9 percent from the same year-earlier period, topping expectations.

Wen and other policymakers have made it clear that stabilizing prices and fighting inflation are the top priority, so analysts rule out an early rate cut or reduction in bank reserve ratios.

Even after the big fall in October, inflation remains well above the government’s 2011 target of 4 percent.

But in a nod to the slowdown in growth, the government has announced selective measures to support the economy.

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