China's inflation stepped up in September, with prices rising more than expected for both consumers and producers in a surprising signal of economic strength.

Consumer prices rose 1.9 percent on-year in September, while producer prices surprised by rising 0.1 percent on-year, the first increase since 2012.



The consumer price index (CPI) had been expected to rise 1.6 percent on-year and the producer price index (PPI) was expected to slip 0.3 percent, according to forecasts from a Reuters poll of economists.

In August, consumer prices rose by a lower-than-expected 1.3 percent on-year, while producer prices fell 0.8 percent.

The data is watched for cues on the health of the Chinese economy as it transitions from a manufacturing base toward consumption. Producer price deflation had been slowing in recent months as commodity prices have come off their lows and a recovery could signal improved corporate profitability.

"The PPI actually had been improving for quite a while and this time it turned positive," Alex Wong, director of asset management at Ample Capital, told CNBC's "Squawk Box" on Friday. "That showed the capacity consolidation has been doing some progress. So I think that will be helpful at least for the manufacturing sectors."

The Australian dollar jumped in the wake of the data, rising as high as $0.7603, compared with around $0.7553 before the release. China is a key export market for Australia.