China’s consumer prices continued to slide in September, falling more sharply than expected, while producer prices remained mired in deflation. The latest figures highlight the persistent weakness in domestic demand and renewed uncertainty over global trade, both of which are weighing heavily on consumer and business confidence.

According to data released Wednesday by the National Bureau of Statistics, the Consumer Price Index (CPI) dropped by 0.3% in September compared with the same month a year earlier. The figure was worse than economists’ expectations of a 0.2% decline, though it represented a slight improvement from August’s 0.4% decrease. On a monthly basis, prices edged up by just 0.1%, undershooting forecasts for a 0.2% gain and indicating only a modest rebound in consumption.

Core CPI—which excludes volatile food and energy prices—rose 1.0% year-on-year, the fastest pace since February 2024, according to data from Wind Information. Economists view this as a mild sign of recovery in spending on essential goods and services, though the improvement remains uneven.

“This increase in core CPI is a positive signal,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. “However, with trade tensions resurfacing and uncertainties over the growth outlook deepening, it’s too early to say that deflationary pressure is easing.”

Producer prices also remained in negative territory. The Producer Price Index (PPI) fell 2.3% in September compared with a year ago, matching analysts’ forecasts. While still deflationary, the rate of decline slowed for the second consecutive month—from 2.9% in August and 3.6% in July—suggesting that the downward trend may be stabilizing.

China’s factory-gate deflation has persisted for nearly three years, eroding manufacturers’ profitability. Many companies continue to grapple with subdued consumer confidence, weakening external demand, and supply chain disruptions linked to U.S. trade restrictions.

The challenges in the manufacturing sector have compounded broader economic headwinds. A sluggish property market and faltering domestic consumption have constrained growth, while U.S. tariffs have further strained export performance. Although China’s total exports have expanded modestly this year, shipments to the United States have plunged by double digits since April, reflecting the lasting impact of trade frictions.

Overall, the September data paint a mixed picture of China’s economic recovery. While core inflation shows signs of life, the persistence of deflation in both consumer and producer prices underscores the fragility of demand. Without stronger policy support or a clear rebound in confidence, economists warn that China could struggle to break free from its low-inflation trap in the coming months.