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BEIJING, Feb. 22 -- The growth of China's producer price index (PPI) slowed to 5.8 per cent year-on-year in January, giving fresh evidence in support of China's austerity measures aimed at reining in its economy.

Down from a 7.1 per cent increase in December, producer prices saw their slowest growth in eight months, according to figures released by the National Bureau of Statistics (NBS) yesterday.

"This is definitely good news for the government," said Stephen Green, senior economist with the Standard Chartered Bank of England.

The acute drop in the producers price is seen in response to China's efforts in cooling down the overheated sectors to escape runaway economic growth since last year, according to analysts.

The index is one of the most important gauges that government officials and economists use to monitor the progress of the nation's economy.

According to the NBS figures, the purchase prices of raw materials, fuel and power jumped by 10.7 per cent year-on-year in January, with the growth rate slightly down from average levels in 2004.

The price of crude oil and refined oil saw an obvious decline in January. The PPI for crude oil rose 19.1 per cent year-on-year, down from 35.6 per cent in December.

Many economists had expected the PPI decrease to occur in January, but "the sharp decrease was still a bit stronger than anticipated," said Green.

He expects there will be possible PPI rebounds within the next few months.

Analysts said the drop in producer prices shows the cooling down of the economy on the one hand, but the evidence is not strong enough for any anticipation that inflationary pressures are already wiped out and there will be no need for further hikes in interest rates.

Gao Huiqing, a senior economist with the State Information Centre, said the consumer price index (CPI), a more important barometer for inflation, is not necessarily in tandem with producer prices.

The CPI once roared rapidly at the start of last year, adding to huge concerns about inflation among policy makers.

High inflation was one factor nudging the central bank to make up its mind in October to raise interest rates in a series of steps taken by the government to cool down the economy and rein in heavy investment in overheated sectors, such as steel and cement.