China consumer prices fall more than expected in September, remaining in deflationary territory

China’s consumer inflation weakened further in September as both headline and factory-gate price dynamics underscored the drag from soft domestic demand and trade-related uncertainty. The National Bureau of Statistics reported that the consumer price index declined 0.3% year-on-year in September, a larger drop than the 0.2% fall economists had anticipated, though an improvement from August’s 0.4% decrease. On a monthly basis, consumer prices inched up 0.1%, short of the 0.2% gain forecasters expected.

Stripping out food and energy, core CPI rose 1.0% year-on-year, the strongest reading since February 2024, according to Wind Information. Despite that pickup in core inflation, analysts warned that renewed trade frictions and a more uncertain growth outlook could sap demand recovery. “It is too early to conclude that the deflationary pressure is fading at this stage,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

Producer prices remained in negative territory, with the producer price index falling 2.3% year-on-year in September, broadly matching economists’ expectations. The pace of factory-gate deflation has moderated for the second consecutive month, narrowing from declines of 2.9% in August and 3.6% in July, but the downturn has persisted for nearly three years and continues to weigh on manufacturers’ margins amid subdued consumer confidence and trade disruptions.

Structural headwinds for demand include a protracted housing slump and external pressures from U.S. tariff measures. While China’s aggregate exports have grown year to date, shipments destined for the United States have registered double-digit declines since April. If an additional 100% tariff on Chinese goods to the U.S. is implemented as threatened by President Donald Trump, levies on exports to the American market would rise to around 155%.

NBS spokesperson Dong Lijun attributed part of the September CPI decline to a “tail effect” from last year’s higher price base, noting that excluding this effect consumer prices would have risen 0.5% year-on-year. Among categories recording the largest drops were food and energy, which fell 4.4% and 2.7% respectively. By contrast, prices for industrial consumer goods such as gold and platinum jewellery jumped sharply, up 42.1% and 33.6% respectively, reflecting a global surge in demand for precious metals. Accommodation and airfares declined by 1.5% and 1.7% in September as hotels, airlines and travel agencies engaged in aggressive price competition ahead of the eight-day Golden Week holiday from October 1 to 8.

“September’s data are a stark reminder of the significant structural challenges that China must overcome to rebalance its economy,” said Alfredo Montufar-Helu, managing director at Ankura Consulting’s GreenPoint Business, pointing to weak demand, persistent excess capacity and intense price competition that are straining corporate resilience.

Beijing has stepped up measures this year to curb destructive price wars and tackle overcapacity, actions that are beginning to show in the macro data. Industrial profits rebounded strongly, rising 20.4% year-on-year in August and reversing three months of declines. Dong noted that narrowing factory-gate price falls reflect policy efforts to reduce excess capacity and the gradual restoration of market order. Price declines eased notably in sectors such as coal processing and mining, ferrous metal smelting and rolling, and photovoltaic equipment and battery manufacturing. Nonetheless, the overall September readings indicate that deflationary forces remain entrenched.

Given the still-weak demand backdrop, these supply-side measures are unlikely to produce an immediate uptick in CPI, according to Economist Intelligence Unit economist Tianzeng Xu, who warned that the recovery in consumer prices is fragile and subject to volatility while the housing market and labour market remain under strain.