The consumer price index -- a key measure of inflation -- was unchanged year-on-year in July, according to data released by China's National Bureau of Statistics.

The reading was better than the 0.1 percent fall forecast in a survey of economists by Bloomberg.

Prices nevertheless fell year-on-year in rural areas (down 0.3 percent) and for consumer goods (down 0.4 percent).

While deflation may be appreciated by consumers, it poses a threat to the broader economy as households tend to postpone purchases in the hope of even lower prices.

However, a long-term crisis in the real estate sector and high youth unemployment have been weighing on Chinese consumer sentiment for several years.

The situation has worsened with the heightened turmoil sparked by US President Donald Trump's trade war.

After four consecutive months of decline, prices nevertheless rebounded in June.

"The downward trend of car and phone prices improved, which contributed to the rise of core CPI," Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said.

"Nonetheless it is still unclear if this is the end of deflation in China," he said.

"The property sector has not stabilised. The economy is still supported more by external demand than domestic consumption," he noted.

In another alarming sign, Chinese factory gate prices saw another fall in July. The producer price index declined 3.6 percent year-on-year in July, following a similar decline in June.

This decline, which has been ongoing for almost three years, means reduced margins for companies engaged in a fierce price war that authorities are trying to curb.

This week, China recorded a rebound in its foreign trade in July compared to last year. But the tariff truce between Beijing and Washington is due to end on Tuesday, at which point US tariffs could return to higher levels.