China's consumer inflation in September rose 2.5 percent compared to a year ago and 0.7 percent higher than August, government data on Tuesday showed.

Producer price inflation, however, cooled for the third straight month in September — an indication of slowing economic momentum amid escalating trade tensions with the U.S.

Inflation in the world's second largest economy is now closely watched amid the trade fracas with the U.S., which has already affected new orders in the Asian manufacturing giant.

The producer price index for September was up 3.6 percent from a year ago, compared to a 4.1 percent increase in August, the National Bureau of Statistics reported. A poll by Reuters showed analysts were expecting PPI to up 3.5 percent compared to a year ago. The PPI rose to 0.6 percent higher compared to a month ago.

The consumer price index (CPI) — a gauge of prices for goods and services — was in line with analyst expectations, according a poll by Reuters. That figure was also within the 3 percent annual target of policy-makers.

Gains in CPI were contributed by a rise in food prices due to adverse weather and a spike in demand due to the Golden Week festive season, said the bureau in its online report.

In retaliation to Washington's increased levies on Chinese imports, Beijing also slapped tariffs on some American goods — but the impact of China's moves appear to be limited so far.

"Tariffs will push up prices which is inflationary, but on the other hand, China still has excess capacity, which means that demand for goods and services is not that strong," said Chi Lo, senior economist at BNP Paribas Asset Management.

"So the pass-through of the tariff prices on domestic prices is going to be limited," Lo told CNBC's "Squawk Box" on Tuesday.

The Chinese central bank is widely expected to adjust monetary policy to shore up slowing growth. China's official growth target this year is around 6.5 percent.

Over the weekend, the People's Bank of China governor Yi Gang said he saw "plenty of room for adjustment" in interest rates and the bank's reserve requirement ratio due to significant downside risks from the bilateral trade dispute.

Earlier this week, the central bank cut the amount of reserves held by banks for the fourth time this year — a move seen to be aimed at boosting liquidity in the system.

— Reuters contributed to this report.