China inflation cools to near 5-year low in September

But analysts divided over action Beijing will take on interest rates

China's inflation rate slowed more than expected in September to a near five-year low, adding to concerns that global growth is cooling fast unless governments take bolder measures to shore up their economies.

The consumer price index (CPI) rose 1.6% in September from a year earlier, the National Bureau of Statistics said on Wednesday, missing market expectations for a 1.7% rise and down from 2% in August.

The CPI rose 0.5% in September from the previous month, versus a 0.4% gain expected by economists.

With inflation well below the official annual target of 3.5%, Chinese policymakers will have ample scope to announce more stimulus measures, though analysts appear divided over whether Beijing will continue to roll out more modest measures or if it now needs to take more aggressive action such as cutting interest rates to fend off the risks of deflation.

"Easing gains (in) non-food prices and the worsening PPI provide more evidence of a weakening economy, which means the problems of weak domestic demand and over capacity are more severe than expected," said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

"We expect policymakers will take more measures to stabilise the economy. The possibility of an interest rate cut is increasing in the coming months."

The producer price index fell 1.8% for the 31st consecutive month, dragged by lower oil and steel prices as weakening demand curbed companies' pricing power and put increasing strains on their balance sheets and ability to pay back debts.

The market had expected a 1.6% fall in producer prices after a drop of 1.2% in August.

Highlighting faltering demand in China, the country's second-biggest steelmaker, Baoshan Iron and Steel (Baosteel), said on Friday it will cut its main product prices for November delivery.

Major construction machinery maker Zoomlion Heavy Industry Science and Technology Co Ltd said late on Tuesday it expects third-quarter net income to fall as much as 90% on continued weakness in the market.

Trade data on Monday showed China's export performance in September beat forecasts, an encouraging sign for authorities who are trying to avert a sharp downturn, even though domestic demand likely remained weak despite surprisingly firm imports.

Premier Li Keqiang said earlier this month that China will avoid a hard landing despite worries over the cooling real estate market, which economists say poses the biggest single threat to the economy.

Li also said he was confident the economy would continue to grow at a "medium to high tempo", forecasting growth of about 7.5% this year, which appears sharply at odds with the low inflation figure.

The latest Reuters poll, conducted before the trade and inflation data, showed the economy likely grew at its weakest pace in more than five years in the third quarter as the property downturn weighed on demand, raising the chances of more aggressive policy steps that may include cutting interest rates.

Third quarter gross domestic product along with September retail sales, industrial output and investment data will be released on Oct. 21.