China's leaders will have more room to further loosen monetary policy after data Thursday showed inflation at its lowest in two and a half years while industrial output and retail sales also eased.

The figures indicate a continued slowdown in the world's second largest economy despite two interest rate cuts already this year.

The country's consumer price index (CPI) rose 1.8 percent year-on-year in July, the National Bureau of Statistics said, the fourth straight month of year-on-year easing and the lowest level since January 2010.

The slowdown provides authorities with further impetus to stimulate the economy, which grew 7.6 percent in the second quarter -- its worst performance since the height of the global crisis in 2008-2009.

China, the world's biggest exporter, has suffered from weakness in overseas economies including the European Union, a key trading partner, while it also suffers internally with a sluggish property market and slow consumer spending.

Beijing has this year taken the rare step of slashing interest rates twice in quick succession while also lowering requirements for how much money banks must keep in reserve as it looks to spur lending.

Investors have come to expect further monetary easing after the country's leaders, including Premier Wen Jiabao, expressed concern over weakness in the economy and have hinted at further action to bolster growth.

Highlighting that the economy remains weak even into the second half of the year, the statistics bureau also announced that industrial output and retail sales -- two key economic indicators -- slowed in July, despite stimulus actions.

Industrial production, which measures output at the country's factories, workshops and mines, rose 9.2 percent last month, compared with an increase of 9.5 percent year-on-year in June.

Retail sales, the main gauge of consumer spending, also slowed, rising 13.1 percent in July compared with the same month last year. They had gained 13.7 percent in June.

The data also highlight the government's inability to spur consumer spending as it looks to move away from an export-driven economy to one that is more self-sustaining.

"This was the month when the stimulus was meant to bite," Alistair Thornton of IHS Global Insight said in a report on the July data. "It didn't."

He added that IHS was now expecting fresh measures including another interest rate cut, more tweaking of banks' reserve requirement ratios and "significant" local investment activity.

"The government needs to transform its current stimulus push into a stimulus punch," he said.

Sun Junwei, China economist at HSBC in Beijing, said the inflation figure confirmed that prices were trending downward and means authorities could act further.

"In general, China's inflation will likely be moderate and controllable in the future, which offers room for China to further loosen its (monetary) policy," she said.

Helping suppress the overall consumer price index was a decline of 0.9 percent in prices for transportation and telecommunications, according to the data.

Inflation for the first seven months of 2012 was 3.1 percent, the bureau said.

Producer price inflation (PPI), a leading indicator showing how much manufacturers are paying, declined 2.9 percent in July from the same month last year -- the fifth straight contraction.

Also Thursday, the bureau said that China's urban fixed asset investments -- a key measure of government spending on infrastructure -- rose 20.4 percent in the first seven months of 2012 compared with the same period the year before.