The nation's Consumer Price Index (CPI) in July fell to the slowest growth rate in 30 months, driven by dropping food prices, official statistics showed Thursday. Economists predicted a much looser monetary policy over worries of a further slowdown in the economy.

CPI, a main gauge of inflation, witnessed an increase of 1.8 percent year-on-year in July, the National Bureau of Statistics (NBS) announced Thursday.

The growth rate was 0.4 percentage points lower than the figure in June, the NBS data showed.

Pork prices declined by 18.7 percent year-on-year in July, dragging down the headline inflation by 0.71 percentage points, the NBS said in a statement.

Meanwhile, vegetable prices saw an 8 percent hike in July on short supply, resulting from natural disasters and bad weather, including rain and flooding in many places. It contributed to a 0.21 percentage point rise in the overall CPI, NBS said.

Zuo Xiaolei, chief economist with China Galaxy Securities, said the slowdown of CPI growth was caused by weak demand, and the rate would climb to above 2 percent in some months in the second half of 2012.

"With likely increases in oil and raw material prices in the future, along with the impact of natural disasters, the relationship between supply and demand may change, and the CPI is likely to bounce up a bit," Zuo told the Global Times.

A continued slip in inflation this year has fuelled speculation that the government is likely to loosen monetary policies to prop up economic prospects.

The Producer Price Index (PPI), a key gauge of inflation at the wholesale level, dropped 2.9 percent in July from the same period last year, marking the fifth consecutive month of negative growth, according to the NBS.

"The data was utterly disappointing. With weakening domestic market demand and declining exports, the downside risk is evident," Tian Yun, vice president of the Beijing-based China Macro Economics Institute, told the Global Times.

Caused by sluggish market demand, the growth of China's industrial output slowed again in July.

The growth of the industrial value-added output eased to 9.2 percent year-on-year in July, 0.3 percentage points lower than the data in June, the slowest growth rate since May 2009.

China's urban fixed-asset investment growth remains flat, as it increased by 20.4 percent year-on-year to 18.43 trillion yuan from January to July this year, statistics from the NBS showed.

This is worse than a market consensus of a 20.6 percent increase, Tian said. "The economy is mainly dependent on infrastructure construction, as the prospects for external demand and domestic consumption are bleak. The government should further loosen the monetary policy to deal with the continuous slowdown of the economy."

Previously, economists widely expected the stabilization of the economy in the second quarter this year and an 8 percent growth on GDP in the third quarter.

"Beijing should increase its investment in infrastructure, and spend more on healthcare and social welfare to boost industrial activity and stimulate the economy," Tian said.

Related Report:

China's CPI growth slows to 1.8 pct in July