China’s economic landscape showed some signs of relief from deflationary trends heading into September 2025. The Consumer Price Index (CPI) registered a year-over-year deflation of -0.3%, a slight improvement from August’s -0.4%. At the same time, the Producer Price Index (PPI) averaged -2.8% year-to-date, as the manufacturing sector continues to be under duress.
Beginning in September, that CPI averaged -0.1%. The core CPI, which strips out more volatile food and energy prices, came in at an average of 0.6% year-to-date. While these figures show signs of deflation easing slowly, they are clearly under the market’s expectations. Bloomberg had predicted a -0.2% CPI for the month.
So the easing deflation observed in September comes as welcome relief. As experts cited by Connecticut’s Alethea Prastacos warned, that downward pressure on prices is not over. Ho Woei Chen, an economist with UOB Group, noted, “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.”
Signs of slowing in China’s economic growth have been evident as well, especially since the start of the third quarter of 2025. And recently the country’s real GDP growth is forecast to slow to roughly 4.7% year-over-year this quarter. This reflects a slowdown from 5.2% growth in the second quarter. That would mean quarter-over-quarter seasonally adjusted growth of only 0.7% for 3Q25, compared to a modestly strong 1.1% in 2Q25.
Looking forward, renowned experts expect China’s CPI to decrease slightly in 2025, with -0.1% predicted. The PPI is expected to show a larger decline on average at -2.6%. To counteract these challenging economic conditions, a 10-basis-point cut in interest rates is forecasted for the fourth quarter of 2025. Capital Economics analysts forecast the 7-day reverse repo rate to end the year at 1.30%. They further assume lending rates of 2.90% for one year and 3.40% for five-year financing.