The National Bureau of Statistics said on Friday that falling food prices and a high base from a year earlier helped to bring inflation down from 5.5 per cent in October.
The decline will allow authorities more flexibility in easing policies that were imposed to cool the overheated economy but are now seen as a threat to growth at a time when hopes are pinned on a robust China to help offset the malaise in Europe and the U.S., analysts say.
Moves toward an easier monetary stance may come as early as next week at an annual economic work conference in Beijing that will set policy for the coming year, said a report by Australia's ANZ Bank.
"In our view, this shift will be supported by diminishing inflationary pressures combined with the rising downside risk to the economy," it said.
China's latest bout of inflation was fueled by a binge in bank lending, unleashed by stimulus that helped fend off the global crisis but ended up mostly in excessive investments in construction and real estate.
Some frugal Chinese families say they have already noticed an easing in some prices.
"Some vegetables and other foods are cheaper now in this season," said Ma Chuanyi, 59, a retired elementary school teacher.
"Household appliances also are not so expensive thanks to discounts," she said.
China has already begun relaxing reserve requirements on banks — raised to record high levels to help soak up excess cash that was helping drive inflation — to help ease a cash crunch and reopen a flow of liquidity needed to keep growth on track.
Beijing is treading a thin line as it strives to support job-creating growth but also avoid re-igniting inflation that can undermine the economic gains underpinning support for the ruling Communist Party.
The widening gap between China's rich and poor has further stoked dissatisfaction among a public increasingly fed up with corruption, pollution and food safety scandals.
"The challenge for policymakers is to enact measures that boost domestic demand and to loosen credit controls somewhat without stoking inflation and property price bubbles," said Jing Ulrich, JP Morgan's chairwoman for global markets.
She forecasts growth next year at 8.2 per cent, well below the 9.1 per cent seen in the quarter that ended in September.
Anemic demand from Europe and the U.S. are sapping China's export sector of its more sharply raised fears of job losses and possible unrest.
A manufacturing survey for November released earlier showed its sharpest decline in nearly three years, linked to marked weakness in new orders and exports.
Such trends appear to have helped the leadership in their campaign bring inflation down from its peak of 6.5 percent in July.
Food costs, a major component of the consumer price index and especially sensitive in a society where poor families spend up to half their incomes on food, rose 8.8 percent in November, the National Bureau of Statistics said.
Pressures related to food prices are likely to ease further, Ulrich noted, pointing to a record high grain harvest this fall.