The recovery, however, was not yet on a solid footing and the economy was growing below potential, the NBS spokesman warned.

"Prices were still falling; overall demand was weak; some industries faced overcapacity; and the industry use rate was low," Li said.

The consumer price index declined by 1.7 percent year-on-year in June from a negative 1.4 percent in May, while the producer price index fell by 7.8 percent year-on-year in June from a negative 7.2 percent a month earlier.

But analysts said that while prices would likely continue to fall in the coming months on a year-on-year basis, deflation is unlikely to become a long-term trend.

"China's expansionary monetary policy, coupled with rebounding commodity and asset market prices, suggest that China will emerge from deflation in the second half of 2009," Li Jianfeng, an analyst with Shanghai Securities, said.

(China Daily July 17, 2009)