CHINA's economy has fallen into deflation after consumer prices declined for the first time since early 2021, in one of the starkest indicators of the challenges facing policymakers as they struggle to revive consumption, reports London's Financial Times.

The consumer price index fell 0.3 per cent year on year in July, according to official statistics, after registering no change a month earlier. The producer price index, a gauge of the prices of goods as they leave factory gates, was down 4.4 per cent in July.

Consumer prices, which last slipped into negative territory in February 2021, have been on the brink of deflation for months as an expected rebound in consumer spending failed to materialize after authorities lifted pandemic restrictions at the beginning of the year.

The move into deflation is set to fuel calls for more government stimulus at a time when policymakers are also grappling with a property sector slowdown and weakness in trade, all of which have dragged on economic momentum.