China's central bank said Tuesday a rebound in inflation was possible in the second half of the year, following months of declining prices, as demand picks up at home and abroad.
The consumer price index (CPI) fell 1.7 percent in June from a year earlier, the fifth consecutive monthly drop, but economists at the bank believe it could bottom out by the end of the third quarter.
"Overall, CPI will stabilise in the second half, and there is a possibility that it will rebound," the bank said in a report posted on its website.
The continued decline in consumer prices comes as China struggles with its most serious economic slowdown in nearly two decades, brought about by the worldwide financial crisis.
However, the central bank on Tuesday suggested improved conditions on the horizon, including signs of recovery in global commodities markets.
It also cited evidence from 5,000 large domestic industrial enterprises suggesting growing confidence that they would be able to get better prices for their products in future.
China's economy, the world's third-largest, grew 7.9 percent in the second quarter, up from 6.1 percent in the first, also suggesting a pickup in activity.