CHINA'S consumer inflation slowed more than expected in May while factory-gate prices fell for 15 months in a row, indicating economic growth may continue to slow down.

The consumer price index rose 2.1 percent in May year on year, after gaining 2.4 percent in April, the National Bureau of Statistics said yesterday.

The median estimate of 39 economists polled by Bloomberg was 2.5 percent.

The producer price index, also below expectation, fell 2.9 percent from a year earlier after a 2.6 percent drop in April, the bureau said, reflecting weak demand and overcapacity in industries from steel to cement.

"The data showed domestic demand failed to be stimulated while external demand was also limited by the high exchange rate of the yuan," Industrial Bank economist Lu Zhengwei said.

As the government aims to keep inflation within 3.5 percent this year, the subdued May inflation figure will allow China to maintain its easy monetary policy.

Economic growth slowed to 7.7 percent in the first quarter from 7.9 percent in the final quarter of last year. The price figures, along with trade data which showed China's exports grew only 1 percent in May, added to evidence that growth may slow further in the current quarter.

Still, the Chinese leadership has indicated China will tolerate slower growth before they move to roll out stimulus plans, in order to achieve more sustainable growth and avoid stoking bubbles as the nation restructures its economy.

Month on month, the CPI dropped 0.6 percent in May, the statistics bureau said.

It attributed the drop to food prices, especially for vegetables. Prices for fresh vegetables dropped 13.8 percent in May from April, helping to drag down the month-on-month CPI by 0.5 percentage points, it said.

"As temperatures kept rising into May, fresh vegetables hit the market in large amounts, resulting in a big drop in prices," Yu Qiumei, a senior statistician with the bureau, wrote in an analysis.

Meanwhile, China's industrial output rose 9.2 percent in May from a year earlier while retail sales increased 12.9 percent, the bureau said, in line with market expectations.

Urban fixed-asset investment rose 20.4 percent in the first five months of the year, after a 20.6 percent gain in the first four.