China's consumer prices rose 0.5 per cent in July compared with the same month of last year, the National Bureau of Statistics said Wednesday.

Urban consumer prices rose 0.2 per cent, while that in rural areas grew 1.1 per cent, the bureau said.

For the first seven months, the consumer price index (CPI), the key inflation gauge for policy-makers, rose a year-on-year 0.6 per cent.

Overall food prices rose a year-on-year 1 per cent in July, while clothing prices fell 2 per cent.

Healthcare prices rose 1.7 per cent, and Chinese medicine prices rose 7.9 per cent.

Qi Jingmei, a senior economist with the State Information Centre, said the CPI is still in a positive area, which suggests the country's economy has turned for the better.

The CPI situation suggested that the booming local and overseas demand help balance overall supply and demand, Qi said.

Wang Zhao, a researcher at the Development Research Centre under the State Council, said the CPI rise was partly due to the higher oil prices on the international market.

The central bank's move to boost money supplies in the past several months also contributed to the price rise.

The central bank has said it would boost both broad money supply (M2) and narrower money supply (M1) figures by 16 per cent this year.

M2 was up 20.7 per cent at the end of July from a year earlier and M1 was up 20 per cent.

"The price rise was a piece of good news for China's economic development, because the price decline could threaten corporate earnings,'' Wang said.

Wang and Qi agreed the CPI will continue to remain in a positive area in the coming months.

"The national economy will continue to grow at a higher rate this year, which will play an active role in the rise of prices,'' Qi said.

The strong growth of industrial production will also continue, because of the country's fast growing economy, the improvement of industrial companies' economic efficiency and excellent export prospects.

"There will be significant demand for a lot of energy and raw materials, which are beneficial for the price rise,'' she said.

But Wang said the commodity price could not grow by a large margin, because of a number of in-depth reasons.

"No China-made products falls short of supply,'' he said.

Also, there were no major factors which could drive the CPI further, besides the possibilities that the government may raise the price of electricity in the second half of this year, Qi said.

The progress made in sciences and on-going system reforms will further drag down the prices, she said.

For 2003, the CPI is expected to rise 1 to 1.2 per cent, Qi said.

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