China's consumer price index (CPI), a main gauge of inflation, dipped 1.7 percent in June from a year earlier, the National Bureau of Statistics (NBS) said Thursday.

This marks the fifth consecutive month of decline since the index dropped 1.6 percent in February, the first fall since October 2002.

The index marked a month-on-month decrease of 0.5 percent, according to NBS. CPI fell 1.4 percent in May year on year.

The CPI fell 1.1 percent in the first half of this year from a year earlier.

Retail commodity prices fell 1.4 percent in the first half. Food prices, which account for about one-third of the CPI, fell 0.3 percent.

"Slackening market demand and excess production capacity are the main factors impeding the CPI," said Wang Yiming, vice president of Academy of Macroeconomic Research under the National Development and Reform Commission.

Meanwhile, summer grain output rose for the sixth consecutive year, which indicated prices would not increase in short term, Wang said. Prices are closely related to grain supply in China.

"Currently, prices are still falling, demand is weak and the economic growth rate is lower than its potential" said NBS spokesman Li Xiaochao.

China does not face an inflation problem as demand was still weak, said Zhang Liqun, a researcher with the Development Research Center of the State Council.

"Both inflation and deflation will hurt the sound growth of our national economy and we want neither," Li said. "We want to keep the prices at reasonable level."

"We will keep close eye on credit growth as prices and bank lending do have close relationship," he said.

A total of 7.37 trillion yuan of new bank loans were extended in the first half of the year, 4.92 trillion yuan more than in the same period a year ago, according to statistics from the People's Bank of China, the central bank.

(Xinhua News Agency July 16, 2009)