Major July economic data is out for China. Inflation growth continues its downward spiral, with CPI dropping below the 2-percent mark in July at 1.8-percent.That's the lowest rate of price growth in 2.5-years. --We've also got producer prices out as well, those numbers not looking too good.

China's inflation rate slowed rapidly, hitting 1.8 percent year-on-year in July, a level we haven't seen in two and a half years.

The fall of headline CPI was mainly due to falling food prices, which make up one third of the consumer basket. They declined to a 33-month low of 2.4 percent year-on-year in July, from 3.8 percent in June.

Non-food CPI rebounded marginally to 1.5% year-on-year in July. Despite the low reading, analysts refute deflationary concerns.

Zhao Ping, deputy director of Consumer Economy Research DEPT., MOFCOM, said, "China's inflation picked up in June last year, and hit a high last July. The base effect has contributed to the low reading of inflation this July. And consumer prices continued to rise moderately this July, so we don't think there are deflationary pressures yet."

Meanwhile, China's factory output price level is dropping sharply, down 2.9% in July. The steepest fall since October 2009. Analysts say that reflects the pressures eating into corporate earnings and capping capital spending.

But the good news is that the government will have more leeway to further ease policy. As inflation is no longer a top concern, policy focus can now stay clearly on achieving the government's growth target of 7.5 percent this year.