The consumer price index (CPI), policy-makers' key inflation gauge, dropped 0.8 percent in October compared with the same month last year.

The index for the first 10 months of this year was 0.8 percent lower than the same period last year, the bureau said.

The prices of most goods fell while those of most services rose. The sharpest fall was in the prices of electronic and telecommunications products, which were 16.2 percent lower last month compared with October last year, the bureau said.

Overall food prices fell 0.5 percent, with grain price dropping 2.9 percent, but fresh vegetables rose 5.9 percent.

Zhang Xueying, a senior economist with the State Information Center, said: "The declining trend of the CPI will continue for a period of time, although the government has sought to counter the problem by increasing money supply."

The central People's Bank of China said on Tuesday that China's broad money supply or M2 rose a year-on-year 17 percent in October, well ahead of the official growth target of between 14 and 15 percent for the year.

Zhang Liqun, a senior researcher with the Development Research Center under the State Council, said the drop in the index was mainly due to an imbalance between supply and demand.

A report issued early this year by the National Bureau of Statistics said that more than 80 percent of Chinese-made products are oversupplied.

On the other hand, foreign products including raw materials and cars have begun to flood into the Chinese market, now that China is a member of the World Trade Organization.

"This will add extra pressure to the market, which has already suffered from an oversupply," Zhang Liqun said.

(China Daily November 14, 2002)