China’s inflation data shows economy in doldrums despite trade improvement

China’s economy remains stagnant, data released on Friday showed, with prices weighed down by weak demand from consumers and businesses.

Consumer prices were unchanged in September from a year earlier, the Office for National Statistics said, while wholesale prices fell 2.5 percent. Exports and imports also fell last month as demand fell in overseas markets.

The world’s second-largest economy’s faltering recovery from the shocks of the COVID-19 pandemic is slowing regional and global growth, although economists said the worst may be over. Trade rose slightly from the previous month and production showed signs of improvement.

Earlier this week, the International Monetary Fund downgraded China’s growth forecasts, forecasting economic growth of 5 percent this year and 4.2 percent in 2024, down slightly from its forecast in July.

The IMF attributed its downward revision to weaker consumer confidence, weak global demand and the crisis in the property sector, which has dealt a major blow to business activity.

China is due to report economic growth data on October 18, and economists forecast the economy to grow at a 4.4 percent annual rate in July-September, down from 6.3 percent in the previous quarter.

Friday’s data showed food prices fell 3.2 percent in September, with the price of pork down 22 percent from a year earlier, a sharper drop than August’s 17.9 percent drop.

Core inflation, which excludes food and energy prices, rose 0.8 percent from a year earlier, the statistics bureau said, similar to a 0.8 percent rise in August.

The recovery in domestic consumer demand has been much weaker than expected, and excessive competition is provoking price wars in some sectors.

September’s inflation data reminds us that despite some strengthening in activity indicators recently, China’s economic recovery remains a challenge, Robert Carnell of ING Economics said in a report.

It forecasts that consumer inflation will be 0.5% for all of 2023 and rise to just 1% in 2024.

China’s producer price index, which measures the prices factories charge wholesalers, fell for the full year, although it shrank more slowly last month than in August.

Still, China’s manufacturing sector is showing some signs of improvement. A survey of factory managers showed that activity is returning to growth. The official PMI for September rose to 50.2 from 49.7 in August, above 50 for the first time in six months. A reading above 50 indicates an increase from the previous month.

Car sales in China rose 4.7 percent in September from a year earlier, the China Automobile Association said earlier this week. Passenger car sales totaled 2.04 million units. The increase came ahead of the long Mid-Autumn Festival and China’s National Day in October. This is usually a great time for car dealers as people buy vehicles ahead of the week-long national holiday.

And the real estate sector is grappling with problems caused by a crackdown on heavy lending by developers, which has crippled many homebuilders.

The housing market appears to have stabilized recently thanks to the latest round of property easing measures, which could lead to a modest recovery in home sales and mortgage demand in the coming months, Julian Evans-Pritchard of Capital Economics said in a comment in Friday.

China’s global trade remained muted in September, with both exports and imports falling from the same time a year earlier.

Both imports and exports fell 6.2 percent from a year earlier, although the economy contracted at a slower pace than in August after a number of policies were rolled out to support the economy.