The reading comes as authorities struggle to kickstart activity among the country's army of consumers, with officials last week issuing a set of directives aimed at boosting buying.
The 0.5 percent increase in the consumer price index -- the main gauge of inflation -- was sharply up from the 0.2 percent seen in June and marked the sixth straight month of rising, according to the National Bureau of Statistics (NBS).
China endured a period of deflation between October to January, when sliding prices of goods and services heightened worries of an economic slowdown.
July's reading -- which beat forecasts in a survey by Bloomberg -- represents the fastest rise in consumer prices since February, when the figure increased 0.7 percent year-on-year.
Beijing has said it wants annual economic growth this year of around five percent, a target considered ambitious by many experts as the country is also laden by prolonged debt crisis in the real estate sector, and high youth unemployment.
To help the economy the People's Bank of China has cut interest rates this year, and ING's Lynn Song predicted more could be in the pipeline.
"Conditions are in place to see inflation trend a little higher in the coming months but it should not impede further monetary easing," he said in a note.
"With low inflation and weak credit activity, domestic factors continue to favour further monetary policy easing. We continue to look for at least one more rate cut this year with the potential for more if global rate cuts accelerate."
The NBS also announced Friday that the producer price index -- which measures the cost of goods as they leave factory gates -- fell 0.8 percent, a 22nd straight month of decline. Bloomberg had forecast it to drop 0.9 percent.
The index provides an overview of the general health of the economy.
Chinese officials have ramped up support measures for the private sector recently in a bid to stimulate activity and spur on household consumption.
Beijing published a list of 20 measures on Saturday aimed at boosting spending, calling particularly for the promotion of entertainment, sports, and tourism.
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