Chinese inflation stalls as economy falters

(Sharecast News) - China's economy appeared on the brink of deflation on Friday, after official data showed inflation was flat in September. According to the National Bureau of Statistics, headline consumer price inflation eased 0.1 percentage point to 0.0% year-on-year in September. Most analysts were looking for inflation to tick up by 0.2%. CPI rose by 0.1% in August.

Core inflation - which strips out more volatile food and energy prices - was unchanged at 0.8%.

Services inflation was unchanged at 1.3%, while goods prices fell 0.9%.

Food prices weighed heavily, however, down 3.2%, with pork prices tumbling 22% following a 17.9% slump in August.

The producer price index, meanwhile, which tracks factory goods prices, fell by 2.5%, slightly more than the 2.4% expected.

Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, said: "The divergence between goods and services inflation reflects the tepid, uneven consumer recovery, favouring services over big-ticket goods.

"China's consumer rebound is likely to pick up only gradually, as household incomes took a hit during the pandemic and people are worried about the shaky jobs market.

"Policy makers are unlikely to shift their approach of deploying meaningful stimulus through infrastructure and manufacturing investment, rather than via big consumption handouts."

Customs data also released on Friday showed a 6.2% decline in exports in September, although that was better than expected, with most analysts looking for an 8% decline.

Imports also fell 6.2%, an improvement on the 7.3% decline seen in August, and the trade surplus widened to $77.7bn.

Wrigley added: "Chinese exports are likely to remain weak in the fourth quarter, due to still-slugging demand from the US and European Union. China's domestic demand is on the path of a slow recovery on the back of further targeted support."

Richard Hunter, head of markets at Interactive Investor, said: "Any economic recovery is proving to be uneven at best. [The data] suggests that deflationary pressures persist, with weak domestic demand adding to the problem.

"For the optimists, a further decline in China's imports and exports for September was at a slower rate, which could signal some signs of stability.

"In the background, however, investors are still fretting over whether any stimulative measures by the authorities to date have been sufficient to light the fire under a true recovery."

China's economy has been knocked by its crisis-hit property market, weaker global demand and the fallout from Beijing's now abandoned no-Covid policy, which caused rolling lockdowns until late last year.