BEIJING--Inflation is merely creeping higher in China, according to the official data, but consumers are feeling a more intense sting from surging living costs, exacerbated by the impact of the trade fight with the U.S. on prices and economic growth.

China's consumer inflation accelerated for the fourth straight month in September, up 2.5% year-over-year to hit a seven-month high, the National Bureau of Statistics said Tuesday, driven by gains in food prices and higher fuel prices. September's official reading is up on the 2.3% gain in August, but slightly lower than economists' expectations.

Though the official number is well below the government's target of about 3% this year, consumers and economists say the figures fail to reflect the real rise in living costs, with rental prices jumping in big cities this summer and expenses in education, health care and other service sectors also on the rise.

While official data has rental costs rising by less than 3% this year, the China Real Estate Association, a government-backed industry group, says rents have soared more than 10% in the period. A quarterly survey of urban consumers by China's central bank released last month shows that more people--almost two-thirds of those polled--expect to feel pressure from price rises in the coming months.

"Inflation pressure in China may have been underestimated," said Fan Lei, an economist at Sealand Securities. "Consumers definitely feel the pressure, though official data may not fully show it."

While China's inflation isn't considered by economists to be a major policy concern--and there are currently no widespread fears of stagflation, a scenario in which economic growth slows while inflation rises--it could become a problem for the government. Rising inflation leaves less room for the central bank to further stimulate growth as it tries to combat external shocks from the trade dispute with the U.S.

With income growth slowing, rising prices bite into Chinese consumers' discretionary expenditure, which could weaken consumption--a recent economic growth driver that Beijing is trying to bolster.

Liu Chang, a 35-year-old mother of two and a marketing professional for a multinational company in Beijing, said she is feeling the higher cost of food in particular this year. "Before, 50 yuan [$7.23] was enough to buy vegetables for my family's weekly consumption. Now, it's only enough for three days," she said.

According to the official data, food prices rose 3.6% in September compared with a year earlier, after climbing 1.7% in August. Fresh vegetable and fruit prices rose more than 10%, and combined to push the headline index more than half a percentage point higher.

Still, inflation could actually ease in the coming months, said China Merchants Securities analyst Lin Shu, as better weather boosts supplies of vegetables and fruits, and because of a higher base for comparison in the same period last year.

Such seasonal factors, however, may mask a fundamental shift in the Chinese economy: Lower production output due to Beijing's supply-side reforms and rising labor costs could stoke inflation in the long run, according Mr. Fan of Sealand Securities.

Meanwhile, China's import prices, from soybeans to oil, are on the rise due to the trade dispute, economists say. The Trump administration this year has imposed tariffs on $250 billion of Chinese goods, prompting Beijing to retaliate with tariffs on $110 billion of U.S. goods. President Trump has said he is ready to extend the tariffs to a further $257 billion of Chinese products, meaning they would cover essentially all U.S.-bound Chinese goods.

China's consumer inflation may rise further next year as more tariffs loom, said Tommy Xie, an economist at OCBC, but he dismissed concerns of stagflation. Economists polled by The Wall Street Journal expect China's gross domestic product to rise 6.6% in the third quarter from a year earlier, a tick down from the second quarter's 6.7%.

Still, some are concerned about where the economy is heading. "There are no clear barometers as to what levels of inflation and growth qualify as stagflation, but the trend is clear: Prices are rising while economic growth is slowing," said Jianguang Shen, an economist at JD Finance.

Nonfood prices--a main driver of CPI this year--increased 2.2% from a year earlier in September, moderating from a 2.5% on-year increase in August. Transportation fuel prices surged by 20.8% on year, extending August's 19.4% rise and leading gains in nonfood prices, the bureau said.

Rental costs, a component of nonfood prices, rose 2.6% in September, the statistics bureau said. The China Real Estate Association's data put last month's growth at 16%. Analysts have said differences in sampling and statistical methods may explain the sharp discrepancy.

Zhang Xi, a 28-year-old white-collar worker who moved from Hong Kong to Beijing in May, said high rents in the Chinese capital have made her consider moving again. "Rents in Hong Kong were also very high, but the average income is also higher than Beijing," Ms. Zhang said.

Liyan Qi, Grace Zhu and Lin Zhu

(END) Dow Jones Newswires

October 16, 2018 05:41 ET (09:41 GMT)

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