Last month's slowdown largely reversed a surge that had fanned fears inflation was spreading from the mainland's buoyant stock and property markets to consumer goods and services.

Mainland stock indices rose by 130 per cent last year, making the exchanges in Shanghai and Shenzhen among the world's best performers. Property prices in major cities have also soared in the past few years, prompting some officials to warn of a development asset bubble.

On Tuesday, People's Bank of China assistant governor Yi Gang said the central bank was ready to act if the economy showed signs of inflation. In an online interview Mr Yi said an increase in interest rates was one policy option to combat inflation.

Saying the January data might give the central bank some relief, economists said it also partly reflected the fact that the week-long Lunar New Year holiday, which shortens the working month, falls in February this year, whereas part of it fell in January last year.

'Seasonal factors related to the timing of Chinese New Year seems to be partly behind this lower number,' said Qu Hongbin, chief China economist with HSBC. 'So we might see a spike this month.'

Standard Chartered senior economist Stephen Green said: 'We should definitely wait to see February's CPI before we start relaxing about inflation.'

Hong Liang, chief Asia economist with Goldman Sachs, forecast the CPI would rise 2.9 per cent year on year in the first quarter of this year.

Noting a rise in food prices had been boosting CPI figures since November, Mr Qu said the central bank would watch inflation figures closely and 'any sign of the spillover from food prices to broader price rises would trigger a moderate rise in rates'.

Food prices rose 5 per cent year on year last month and the price of consumer goods rose 2.6 per cent, the bureau's website said.

Grain prices rose by 6.9 per cent year on year and vehicle fuel and parts rose 10.8 per cent.

The mainland's inflation rate was 1.5 per cent last year.

Growth in China's broad M2 money supply also slowed last month, growing 15.9 per cent year on year to 35.2 trillion yuan - down from 16.9 per cent in December, the central bank said.

The mainland's M1 narrow money supply, comprising mainly cash and demand deposits, rose 20.2 per cent last month to 12.9 trillion yuan, up 2.7 percentage points from December and 9.6 percentage points from January last year.

Mr Green said January's M2 figure should give the central bank some comfort and reduce speculation that it would increase reserve requirements or lending rates in the near future. The central bank has targeted M2 growth of 16 per cent this year.

However, Mr Green warned that January's M1 growth, the fastest in some 31/2 years, suggested that underlying inflationary pressures were still strong.