China: Deflation eased but price pressure remained subdued in September – UOB Group

China’s Consumer Price Index (CPI) deflation eased, coming in at -0.3% y/y in September, an improvement from August (-0.4%) (versus Bloomberg est: -0.2%). This was the second straight month of negative reading. However, Core CPI (excluding food & energy) continued to rise to a 19-month high of 1.0% y/y from 0.9% y/y in August, UOB Group's economist Ho Woei Chen reports.

CPI and PPI deflation eased in September

"Both the deflation in the CPI and PPI eased in September but downward pressure is expected to persist. US tariff policy and weak domestic household confidence continue to keep price pressure on the downside."

"Year-to-date as of September, headline and core CPI averaged -0.1% y/y and 0.6% y/y respectively while PPI averaged -2.8% y/y. Taking into account of the latest data, we tweak our forecasts for 2025 CPI to -0.1% (from -0.2%) and PPI to - 2.6% (from -2.7%). We continue to expect some easing in the deflationary pressure for 2026 with headline CPI to recover to around 0.9% amid government policies to promote consumption and PPI deflation narrowing to -0.8%."

"China’s economy has started to slow more evidently since the start of 3Q25. We expect real GDP growth to moderate to around 4.7% y/y, 0.7% q/q sa in 3Q25 from 5.2% y/y, 1.1% q/q sa in 2Q25. Monetary policy will be kept accommodative amid the renewed uncertainties from the US-China trade war. We reiterate our forecast for a 10-bps cut in 4Q25, with the 7-day reverse repo, 1-year LPR and 5-year LPR to end the year at 1.30%, 2.90% and 3.40%, respectively. We also see prospect of a further 50-bps cut to the RRR."