Inflation in China unexpectedly retreated in August, a new sign of trouble in the world’s second-largest economy as new lockdowns in major cities hit growth again.

Consumer prices rose 2.5% in August compared to a year earlier, China’s National Bureau of Statistics said on Friday, down from July’s 2.7%. Economists polled by the Wall Street Journal had expected 2.8%.

A slowdown in inflation, giving some respite to households under pressure from Covid-19 restrictions and falling home prices, signals signs of weakness in China’s economy as Communist Party leaders prepare to gather in Beijing next month. In that congress, leader Xi Jinping is seeking to reverse the recent precedent and secure a third term in office.

He would do so against a black economic background. China’s economy is reeling under the weight of declining real estate and declining demand for its exports.

More recently, drought has threatened crops and affected power supplies in key industrial areas, while the Covid-19 flare-up has caused authorities to impose sweeping new restrictions on businesses and daily life in cities including Shenzhen and Chengdu. China on Thursday announced new testing requirements for domestic travel ahead of the Mid-Autumn Festival, a long holiday there and in other parts of Asia.

Still, low inflation may provide additional comfort to policymakers as they calibrate policies to stimulate the economy. China has said it aims to keep consumer inflation at or below 3% this year.

While central banks including the Federal Reserve and the European Central Bank are raising rates aggressively to tame inflation, the People’s Bank of China has been able to cut borrowing costs to support growth.

Jichun Huang, an economist at Capital Economics, said on Friday that he expects the PBOC to cut rates further later this year.

Other economists say the scope for maneuver for the PBOC is limited, however, given weak credit demand and pressure on China’s currency as investors drive money out of China to chase higher interest rates in the US and elsewhere. . The PBOC said on Monday it would cut the reserve-requirement ratio on foreign currency deposits, aimed at halting the yuan’s slide.

For the rest of the world, slowing growth and minimum price pressures in China can help ease global inflationary pressures by controlling China’s appetite for commodities and encouraging Chinese factories to resist price hikes.

Manufacturer-price inflation, a gauge of factory-gate prices charged by Chinese manufacturers, slowed to 2.3% in August from 4.2% in July, according to data released on Friday. This was the weakest reading since February 2021 and the 10th consecutive month of slowing price growth. This was weaker than the 3% expected by the surveyed economists.

China’s Bureau of Statistics said a slowdown in producer-price inflation reflected a fall in global prices for oil and metals, which rose earlier in the year due to Russia’s invasion of Ukraine and disrupting global commodity supplies as a result of Western sanctions. went. The Bureau of Statistics said it also reflects weak demand for steel used in construction and higher domestic coal production.

The unexpected slowdown in consumer prices was primarily driven by falling food prices as well as fuel prices. The government took steps to boost the supply of pork by releasing stock from its reserves, which has led to a sharp rise in pork prices. Fruit and vegetable prices also rose lower than expected.

China’s economy grew just 0.4% year over year in the second quarter, and hopes of a mighty revival have eroded. Economists at Nomura cut their forecast for third-quarter growth from 2.9% to 2.6%, and said they expect the economy to expand by just 2.7% for the full year, compared with 8.1% and 6.7% in 2021. was increased. This is the average rate in the five years leading up to the pandemic.

China’s State Council, or cabinet, earlier this week announced a flurry of policies to help workers and businesses, including subsidies for unemployed youth and gig-economy workers.