China's August inflation level will likely show a modest rise over July, with the country expected to see a "U-shaped recovery" in consumer inflation this year, analysts said on Friday.

When it comes to concerns over deflationary risks after the relatively low inflation figures in July, they said China is not entering a period of deflation, and consumer prices will likely pick up gradually from August with steady economic recovery anticipated amid a raft of pro-growth policies taking effect before year-end.

However, they said lackluster demand still weighs on economic growth, adding that further macroeconomic support — including additional monetary easing and forceful fiscal support for households — will be crucial in consolidating the recovery trend.

Cai Hanpian, a researcher at Peking University's National Economy Research Center, said there is a strong likelihood that August consumer inflat=ion data will show positive growth, and the consumer price index — a key barometer of inflation — should increase moderately to 0.2 percent year-on-year, up from the 0.3 percent decline in July.

Her remarks came as the market is early waiting for the August inflation data, which are scheduled to be released by the National Bureau of Statistics on Saturday.

"CPI growth will likely turn higher month-by-month from August, pointing to a 'U-shaped' recovery this year. For the full year, China's CPI inflation may remain at a low level, most likely within 1 percent," she said.

As for producer prices, Cai said the August producer price index, which gauges factory-gate prices, will likely fall 2.6 percent from a year earlier after the 4.4 percent annual contraction in July.

The People's Bank of China, the nation's central bank, said in its second-quarter monetary policy report that China's economy is not witnessing deflation, as the economy continues to recover, and the broad money supply is growing relatively fast.

"Currently, there is no deflation (in China's economy)," the PBOC said in the report released on Aug 17, adding that it is not expecting inflation or deflation to become a problem for China. It said China's consumer inflation is likely to gradually recover from August, and it is also expecting to see a "U-shaped" recovery this year.

Citing data from the National Bureau of Statistics, Wang Jinbin, deputy dean at Renmin University of China's School of Economics, said July's negative CPI growth does not mean deflation for China, especially as core inflation, which excludes volatile food and energy prices, rose by 0.8 percent year-on-year in July, up from a 0.4 percent rise in June.

Looking ahead, Wang voiced optimism for China's economic prospects, saying many international institutions' forecasts for China's 2023 GDP growth still remain above 5 percent.

While the broader economy still faces pressure and challenges from ongoing stress in the property sector, sluggish exports and weak private investment sentiment, a raft of recently announced targeted pro-growth policy measures will help deal with the issues, he added.

"Compared with the second-quarter performance, China's economy will likely perform better in the third and fourth quarters given the government's strong policy support," Wang said.

Meanwhile, experts said the low inflation readings indicate the acute problem of ongoing weak demand, putting pressure on policymakers to take more steps to shore up growth. They said there is a strong likelihood of a cut in the reserve requirement ratio in September.

Louise Loo, lead economist at Oxford Economics, said lots of policy measures will support growth, but no big, broad-based credit or fiscal moves are likely.

Loo said her team expects two 25 basis point cuts to the RRR in September and December, alongside a third round of cuts of 10 basis points across key policy rates this year.