THE deflationary pressure dragged on last month with a further dip in the benchmark consumer price index (CPI), but analysts remain optimistic about the nation's full-year growth on the back of robust export and capital inflow figures.

　　On a related front, money supply in the first seven months of the year largely remained upbeat, the central bank said Tuesday.

　　The bank also used the opportunity to answer economists who have criticized it for not being active enough in supporting economic growth.

　　Some economists have called for a scaled-up money supply to offset lingering deflationary pressures, which are increasingly reflected in falling prices for consumer commodities, services and capital goods.

　　China's CPI dropped by 0.9 per cent in July, the National Statistics Bureau (NSB) said Tuesday, extending a downward spiral that started in November.

　　Broad money supply, or M2, grew by 14.4 percent on a year-on-year basis to 17.1 trillion yuan (US$2 trillion) at the end of July, which the People's Bank of China said Tuesday in its monthly report was in line with the needs of economic growth.

　　"With the CPI dropping and money supply growing at such a pace, it's probably the supply side that is playing the determining role," said Zhang Xueying, senior analyst with the State Information Center, a government think tank.

　　Zhang said major reasons behind July's price drops probably included increases in the supply of grains, moving from a warehouse to a summer harvest and growing domestic supplies of aquarian products due to tightened European Union sanitary standards.

　　Grain prices tumbled 2.1 percent last month compared with July 2001 and aquarian prices fell by 3.6 percent.

　　According to the NSB, they were the top two biggest decliners in food, which registered an overall 0.9 percent price dip in July.

　　Zhang said an upswing in cheaper imports, which soared by 28.9 percent in July, also depressed prices in the domestic market.

　　But the CPI slip did not justify pessimism about deflationary woes deepening or the economic growth being scuttled, as unexpectedly strong momentum in exports and foreign direct investment in the first seven months augurs well.

　　"We still need to look at ex-factory prices for industrial products and capital goods prices," Zhang said.

　　"We are still optimistic that GDP growth will come between 7.5 to 7.8 percent this year."

　　Other money supply measurements, including M1 and M0, largely grew at similar paces seen in previous months.

　　Fluidity of money, an issue drawing increasing attention and measured by M1/M2, continued its stable growth that started in May to 37.2 percent. Yet, analysts said it was still inadequate to enable a fouled monetary system to deliver desirable support for economic growth.

　　China's M2 includes M1, personal savings, institutional time deposits and other deposits. M1 includes M0, or cash in circulation and institutional demand deposits.

　　Personal savings deposits grew by 18.4 percent from a year earlier to 8.3 trillion yuan at the end of July. (SD-Agencies)