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China’s consumer prices declined more than expected in September, signaling that deflationary pressures are persisting despite government efforts to stabilize growth. The continued drop underscores the fragile state of domestic demand and renewed concerns over the country’s slowing recovery.

According to the National Bureau of Statistics (NBS), the Consumer Price Index (CPI) fell 0.3% year-on-year, exceeding the expected 0.2% decline. Although slightly improved from August’s 0.4% drop, the latest figure highlights the sustained weakness in spending and consumer confidence across the country. On a month-to-month basis, prices rose by 0.1%, below forecasts of a 0.2% increase.

Meanwhile, core CPI—which excludes volatile food and energy prices—rose 1.0% year-on-year, marking its strongest increase since February 2024. Economists view this as a modestly positive sign, but one insufficient to offset broader deflationary trends.

“The improvement in core CPI is encouraging, but the overall economic sentiment remains fragile,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “With rising trade tensions and uncertainty around global growth, demand recovery is still at risk. It’s too soon to conclude that deflationary pressure is easing.”

The Producer Price Index (PPI), which tracks prices at the factory gate, dropped 2.3% year-on-year, in line with forecasts. While this marks the second straight month of slowing deflation after August’s 2.9% and July’s 3.6% declines, the data shows producer prices have been falling for nearly three years. Persistent PPI deflation has eroded profit margins for Chinese manufacturers, many of whom are grappling with tepid global demand and the ongoing impact of U.S. tariffs.

Weak demand and structural challenges
China’s broader economy continues to face multiple headwinds. Domestic consumption has yet to recover from the housing market downturn, and youth unemployment remains high. At the same time, the export sector faces growing uncertainty due to rising U.S. tariffs. Although total Chinese exports have grown modestly in 2025, shipments to the U.S. have suffered double-digit declines since April, as trade frictions intensify.

If President Donald Trump proceeds with his threat to impose an additional 100% tariff on Chinese imports, total levies on U.S.-bound goods could surge to around 155%, further dampening export prospects.

According to Dong Lijun, spokesperson for the NBS, part of the CPI decline can be attributed to the “tail effect,” referring to higher prices in the previous year. Excluding that factor, consumer prices would have risen by 0.5% annually.

Sector breakdown: food, energy, and travel
Food and energy prices led the decline, falling 4.4% and 2.7%, respectively, as agricultural output improved and fuel prices stabilized. However, certain consumer goods—particularly luxury items—saw sharp price increases. Gold and platinum jewelry prices jumped 42.1% and 33.6%, respectively, fueled by a global surge in demand for precious metals as investors seek safe-haven assets.

In contrast, the services sector experienced price drops ahead of the October Golden Week holiday. Hotel accommodation costs declined 1.5%, while airfares fell 1.7%, as aggressive price competition among travel companies drove rates lower.

Government response and industrial recovery efforts
To counter growing deflationary pressure, Beijing has stepped up efforts to curb overcapacity and prevent price wars in key industries. Regulators have tightened oversight on sectors such as steel, coal processing, photovoltaic equipment, and battery manufacturing, threatening to shut down factories exceeding production quotas.

These measures are beginning to take effect. Industrial profits rose 20.4% year-on-year in August, reversing three consecutive months of decline, according to NBS data. Dong noted that narrowing declines in factory-gate prices indicate “continuous optimization in market order” as a result of these policies.

However, analysts caution that while industrial stabilization is a positive sign, it won’t immediately boost consumer prices. “The CPI remains fragile and volatile,” said Tianzeng Xu, economist at the Economist Intelligence Unit. “With weak housing demand and a sluggish labor market, inflation recovery will be gradual at best.”

Outlook: fragile recovery ahead
China’s September inflation data serves as a stark reminder of the country’s ongoing structural challenges — from slowing consumer activity to overcapacity in manufacturing. While modest signs of improvement are visible, the persistence of deflation suggests that Beijing may need to consider stronger policy support to revive confidence and demand.

For now, economists agree that the world’s second-largest economy remains in a delicate balance — cautiously stabilizing, yet still walking a fine line between deflation and recovery.