The consumer price index, the main gauge of inflation, was 1.0 percent in January, down from 1.2 percent in December, the National Bureau of Statistics said Tuesday.

"We're definitely seeing China moving to a deflationary environment in coming months," said Glenn Maguire, chief economist for Asia Pacific with Societe Generale.

January's inflation figure was the lowest since July 2006, when consumer prices also rose 1.0 percent from a year earlier.

Inflation was dropping speedily towards zero on a mixture of precipitous declines in global crude prices and a lack of momentum at home, economists said.

In an ominous sign of things to come, producer prices, which measure trends at the wholesale level, fell 3.3 percent in January, the second straight drop after a 1.1 percent drop in December, the state-run Xinhua news agency said.

"Producer prices are becoming more correlated with consumer prices in China, and as that moves deep into negative territory, it is likely that we will see a period of outright price declines," Maguire said.

The key figure that analysts look at in most economies is core inflation, which does not include food and energy prices, because they are considered too volatile.

China does not have a precise equivalent for core inflation, but the index that comes closest -- for non-food prices -- was down 0.6 percent in January from the same month a year ago.

"If the core consumer inflation is in negative territory for a long time, that would be worrisome," said Wang Tao, a Beijing-based economist with UBS.

China started 2008 with rapidly rising inflation, and the consumer price index hitting a near 12-year high of 8.7 percent in February.

Leaders in Beijing made inflation control the top objective in the first half of last year, but priorities changed as the global economic crisis started having an impact.

Food prices were a major factor behind the spike in inflation at the start of 2008 but costs began to fall in the second part of the year.

There was continued relief for consumers in January. Although food inflation stood at 4.2 percent in January, the price of pork, the most important meat in China, was down by 13.3 percent.

China's economy grew by 9.0 percent in 2008, slipping back into single digits for the first time in six years, with expansion in the final quarter just 6.8 percent.

Compared with December, consumer prices in January rose 0.9 percent, the statistics bureau said.

The bureau did not give a reason for the increase, but it could reflect growing consumption in the run-up to the Lunar New Year festival, the biggest holiday of the year, which fell in late January this year.

Since part of the deflationary trends creeping into China have overseas origins, such as energy prices, there are limits to what the government can do about it.

"The government is likely to take various measures, such as raising the procurement prices for grains and other agricultural products," said Wang of UBS.

In an attempt to boost China's rural economy, the government has already introduced subsidies to help farmers buy more durable consumer goods.

Reflecting this, inflation in January was up 1.5 percent in the countryside, compared with a 0.7 percent rise in the cities.

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