China's deflation risk up as signs of economic weakness mount

Core inflation at its weakest in over three years with households reluctant to spend

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China's core inflation cooled to the weakest in more than three years, adding to signs that policymakers are struggling to get households to spend and further putting the annual growth target under pressure.

The consumer price index (CPI) increased 0.6 per cent in August from a year earlier, less than a median forecast of 0.7 per cent growth in a Bloomberg survey of economists. Excluding volatile food and energy costs, core CPI rose 0.3 per cent, the least since March 2021, indicating lingering weakness in overall demand.

"The deflationary pressure in China is getting more entrenched," said Ms Michelle Lam, Greater China economist at Societe Generale. "This may well fuel a downward price-wage spiral which will require more radical policy response."