Inflation stabilized and factory-gate prices decreased slower in July, according to leading indexes.

The Consumer Price Index increased 0.1 percent from a month earlier, with a year-on-year growth rate of 2.7 percent in July, the same as June, the National Bureau of Statistics said on Friday.

The year's inflation peak may have come in June and July as the index for the next two months is likely to slip below 2.5 percent, said Liu Ligang, the chief economist in China with the ANZ Group.

Liu said that annual inflation may stand at about 2.5 percent, lower than the 3.5 percent target, leaving more space for the central government to adjust policy if the economic slowdown worsens in the second half of the year.

Meanwhile, the Producer Price Index in July continued to drop. It stands at 2.3 percent, compared with a 2.7 percent decline in June.

Yu Qiumei, a senior economist with the NBS, said the month-on-month PPI decrease slowed for the first time since April.

It is in line with the slightly improved manufacturing Purchasing Mangers' Index, according to Yu.

Guan Qingyou, assistant dean at the Minsheng Securities Research Institute, predicted that inflation in 2013 will remain moderate, and monetary policy will be prudent.

"Some reform measures released earlier strengthened market confidence, which is helpful to stabilize economic growth and achieve the 7.5 percent GDP target," Guan said.