CHINA'S consumer and producer prices continued to nosedive last month while exports also extended their tumble, pointing up the need for the nation to sustain a "relatively loose" economic policy that promotes consumer demand, analysts said.

The Consumer Price Index, the main gauge of inflation, fell 1.8 percent in July from a year earlier, the sixth straight monthly decrease and the biggest drop since 1999, the National Bureau of Statistics said yesterday. The CPI fell 1.7 percent in June and 1.4 percent in May.

The Producer Price Index, the measure of factory-gate inflation, decreased 8.2 percent last month, the most since record keeping began in 1992. It was the eighth straight monthly decline.

"Judging from the declining trend of the CPI and PPI, inflation is not an imminent threat and the government should stick to its moderately easy policy stance to keep economic growth steady," said Hao Daming, an analyst at China Galaxy Securities Co. He predicted the CPI won't turn positive until next year.

Meanwhile, China's exports, the sector hardest hit by the global economic meltdown, dropped 23 percent year on year in July to US$105.4 billion. The figure compared with declines of 21.4 percent in June and 26.4 percent in May, the General Administration of Customs said yesterday. But it marked the first month this year that export value exceeded US$100 billion.

Imports were down 14.9 percent in July compared with a year ago, setting July's trade surplus at US$10.7 billion, compared with US$8.2 billion in June and US$13.4 billion in May.

"China's exports remain volatile, and it is hard to predict when the sector will emerge from the shadow of weak global demand. So at this time, the government can't change its policy stance, which helps to boost domestic demand - the key to sustaining the economy," said Li Maoyu, an analyst at Changjiang Securities Co.

China's gross domestic product rose 7.1 percent in the first half from a year earlier, with the rate accelerating 7.9 percent in the second quarter from growth of 6.1 percent in the first three months.

The People's Bank of China said on Friday that it would not set quotas on new loans to rein in liquidity and that any "fine-tuning" of the monetary policy does not mean a shift in basic macroeconomic policy.

In fact, banks in China issued 355.9 billion yuan (US$52.1 billion) in yuan loans in July, down sharply from 1.53 trillion yuan in June, the central bank said yesterday.

China's urban fixed-asset investment gained 32.9 percent from a year earlier in the first seven months, 5.6 percentage points higher than the same period last year but down 0.7 percentage points from the figure in the first half, the statistics bureau reported yesterday. It also said July retail sales rose 15.2 percent year on year to 993.7 billion yuan (US$145.5 billion), accelerating from the gain of 15 percent in June.

Wang Qing, an economist at Morgan Stanley, said the data indicate that any big changes in economic policy are at least 10 month away.

"We expect a gradual policy shift. The current stance should remain broadly unchanged toward year end and turn neutral at the beginning of 2010 as the pace of new bank lending normalizes," Wang said. "Policy tightening in the form of base interest rate increases or hikes in reserve requirements are unlikely until the middle of next year."