This photo illustration shows a Chinese 100 yuan notes, left, and U.S. 100 notes, right, in Beijing, Jan. 14, 2020. AFP-Yonhap

China's monetary policy easing did not spike inflation last month, with both consumer and producer price growth falling short of expectations and deflationary pressures continuing to bite.

The consumer price index (CPI), a key gauge of inflation, grew by 0.4 percent year on year in September, compared to an increase of 0.6 percent in August, the National Bureau of Statistics (NBS) said on Sunday.

The reading fell short of the expected 0.7 percent growth projected by economists polled by Wind.

The growth was largely driven by food prices, which grew 3.3 percent year on year last month, including a 22.9 percent jump in vegetable prices and a 16.2 percent increase in pork prices.

However, home appliance prices dropped 2 percent from a year earlier, housing rents were down 0.4 percent, while the price of vehicles dropped 5.3 percent amid large supply.

Prices of Chinese new energy vehicles, which face high tariffs in the United States, the European Union and Canada, dropped 6.9 percent year on year.

On Sunday, Dong Lijuan, an official with the statistics bureau, attributed the slower consumer inflation growth to a higher comparison base last year.

Amid an overall economic slowdown, consumers in the world's second-largest economy are holding back on spending as the labor market remains weak and the property slump drags on.

China's CPI growth has remained around zero since March of last year, fuelling market concerns about deflationary pressure and weak demand.

Meanwhile, China's producer price index, which measures the cost of goods at the factory gate, slipped by 2.8 percent in September, falling for the 24th consecutive month, compared to a decline of 1.8 percent in August.

The reading was worse than the 2.5 percent decline forecast in a Wind poll.

Elsewhere, China's core inflation, which excludes volatile food and energy prices, rose by 0.1 percent last month compared to a year earlier. The key gauge used by monetary authorities dropped 0.1 percent from August, while January-September growth was 0.5 percent.

On a month-on-month basis, China's CPI remained unchanged in September following a 0.2 percent fall in August, according to the NBS.

A customer shops for meat at a market in Shenyang, China, Sept. 9. AFP-Yonhap

The current CPI reading, with growth of 0.3 percent for the January-September period, is far below the annual control target of 3 percent, providing a lot of leeway for China's monetary easing.

Starting last month, Beijing announced a variety of measures to help meet this year's GDP growth target of around 5 percent.

The People's Bank of China rolled out a larger-than-expected monetary easing at the end of September, including a 20-basis-point cut to the seven-day reverse repo rate, a large cut to mortgage rates and the release of 1 trillion yuan ($141.3 billion) in liquidity into the interbank market through a reduced reserve requirement ratio.

Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, said a change in fiscal policy stance would help to shore up demand.

"The size of the fiscal stimulus matters. Decisive action is required before the deflationary expectation becomes further entrenched," he said.

At a Saturday press conference, the Ministry of Finance vowed to tackle local debt with a larger-than-expected swap plan and to stabilize the property market with more incentives, but did not reveal a specific figure for a fiscal package.

However, the market is expecting a mild fiscal stimulus through the issuance of ultra-long treasury bonds and a higher fiscal deficit ratio next year, pending approval by China's top legislature.

Read the full story at SCMP.