The country's consumer price index, a main gauge of inflation, rose 2.1 percent year-on-year in March, compared with 2.9 percent for February, the National Bureau of Statistics said on Wednesday. Analysts said the month-on-month decline indicates that high inflation may be unlikely this year, which will prevent policymakers from tightening their monetary policy stance.

On a month-on-month basis, CPI declined 1.1 percent, according to NBS data.

The month-on-month drop was due to the ebb of holiday factors, which pushed up demand in February, said Sheng Guoqing, a senior statistician of the NBS, in a statement.

The moderation was normal, considering a high comparison base, he said.

Analysts believe the month-on-month slowdown, which was due to the high base from February, proved the fact that high inflation is highly unlikely this year and China's prudent monetary policy will continue this year.

With holiday factors ebbing, the March CPI seeing less increase is reasonable and the annual inflation is expected to be around 2 percent, said Deng Haiqing, chief economist of JZ Securities, in a research note.

The 2.9 percent CPI increase in February "will surely be the highest of the whole year," he said. China set a CPI growth control target of 3 percent for this year in March.

According to the NBS, food prices dropped 4.2 percent in March compared with February, contributing 0.86 percent-age point to the month-on-month decline in CPI.

With demand for travel easing after the Spring Festival, prices of air tickets dropped by 18.7 percent compared with February, while travel agency charges dropped 11.7 percent and long-distance bus tickets dropped by 4.7 percent.

China's producer price index, which measures costs for goods at the factory gate, rose 3.1 percent year-on-year in March, down from a rise of 3.7 percent recorded in February, as growth in factory prices of production materials and consumer goods both moderated, said Sheng.

On a month-on-month basis, PPI dropped 0.2 percent in March.

Factory prices in the gas production and supply sector saw a drop of 1.7 percent compared with February, while factory prices in the automobile manufacturing industry decreased by 0.2 percent.

Paper-making and paper products sector factory prices witnessed an increase of 1.3 percent compared with February, a rise of 9.2 percent year-on-year, it said.