China has posted slower than expected inflation amid plans for stimulus boost

Inflation is running softer than expected in China, sparking calls for the world’s second biggest economy to go harder on stimulus.

The consumer price index inched up 0.4 per cent in the year to September, less than the median forecast of 0.6 per cent in a Bloomberg survey of economists.

Producer inflation fell 2.8 per cent, declining for two full years. Economists had predicted a 2.6 per cent drop.

Core CPI — which excludes volatile food and fuel prices — rose just 0.1 per cent, according to data from the country’s National Bureau of Statistics on Sunday.

The figures highlight the weakness of domestic demand, before policymakers unleashed a swath of stimulus measures late September to revive the economy.

China is facing the longest period of deflation since the 1990s, with a broad measure of economy-wide prices falling for five straight quarters through June — a stretch that likely continued through September.

Beijing has cut interest rates and ramped up support for property and stock markets since late September.

On Saturday, the Finance Ministry promised more aid for the slumping property sector and indebted local governments.

“The overall inflation is still significantly lower than the policy target and demand is still weak,” Jones Lang LaSalle chief economist Bruce Pang said.

“With the effective implementation of existing policies and the launch of new measures, it is expected that consumer and producer confidence and expectations will be effectively boosted with market demand gradually recovering.”

Overall food inflation climbed 3.3 per cent in September from a year ago, while the cost of fresh vegetables surged 22.9 per cent after gaining 21.8 per cent in August.

Adverse weather and seasonal demand ahead of a week-long holiday in China likely pushed up prices for fruits and vegetables.

Weak consumption and a rapid rise in output have led to intense price wars in sectors including electric vehicles and solar.

Prices of so-called transportation facilities including cars dropped 5.3 per cent.

Falling prices can be considered a bad sign for the economy.

Deflation could lead to a vicious circle by driving down spending and investment, which in turn lead to weaker economic growth and higher unemployment.

Meanwhile, China’s highly anticipated Finance Ministry briefing on Saturday lacked the firepower that equity investors had hoped for, indicating that the volatility that’s gripped the market following a world-beating rally will likely extend.

While Finance Minister Lan Fo’an promised more support for the struggling property sector and hinted at greater government borrowing to shore up the economy, the briefing didn’t produce a headline dollar figure for fresh fiscal stimulus that the markets had sought.

A lack of new incentives to boost consumption, which has been a weak link in the economy, is another reason why traders may have felt disappointed.