China''s consumer price index (CPI) grew 1 per cent year-on-year in July, compared to 1.5 per cent in June, the National Bureau of Statistics said on Friday.

But the producer price index (PPI), which better reflects the price movements of major production materials, saw faster growth last month  3.6 per cent compared to the same period last year, up from 3.5 per cent annualized growth in June.

Meanwhile, the procurement prices of raw materials, fuel and power surged 6.7 per cent year-on-year in July, up from June''s 6.6 per cent growth.

The contrast between the movements of the two indices is largely because food accounts for a large proportion of CPI, China''s major inflationary barometer.

Food prices only grew by 0.6 per cent year-on-year in July, with the prices of edible oil, meat, eggs and vegetables down 3.3 per cent, 7.1 per cent, 12.9 per cent and 3.5 per cent, respectively.

Such seasonal fluctuations of food prices are normal, said Zhu Jianfang, a macroeconomics analyst at Beijing-based CITIC China Securities.

And that pulled down the overall growth of CPI in July.

For other CPI constituents, the price of clothing declined 0.6 per cent year-on-year in July, while telecommunication prices also declined 17.8 per cent.

However, the prices of water, power and fuel continued to rise, increasing 5.3 per cent year-on-year in July.

Many production materials and fuel prices are still rising fast, Zhu said.

For example, the producer price of crude oil surged 26.6 per cent year-on-year in July, while petrol, kerosene and diesel climbed 25.4 per cent, 27 per cent and 21.2 per cent respectively in the month.

Strong demand also pushed up the purchase price of fuel, nonferrous metals and chemicals, which rallied 13.1 per cent, 37.2 per cent and 2.2 per cent respectively.

The PPI growth means that the prices of most of the raw materials, especially fuel and power, were still growing at a rapid pace, though some also reported a moderate decrease, said Zhu.

And this trend is likely to be maintained in the short term, he said, adding that this may require the authorities to come up with more tightening measures to cool down the economy.

Earlier this week, in a monetary policy report issued by the central bank, the authorities clearly stated its concern on the potential overheating of the economy, given the fast economic growth and strong investment desire in spite of the tightening policy.

It also said inflationary pressure is mounting.

China''s economic growth reached 10.3 per cent in the first half of the year. The central bank report said growth is likely to slow down in the second half of the year but will remain fast.

Food prices may decline further due to sufficient supply and could further weigh down CPI growth in the coming months, but the prices of assets and services are still expected to rise, increasing inflationary pressures.- China Daily