Prices in China are stagnating, putting more pressure on Beijing to jump-start the economy

• New signs of deflation in China are stoking demand for national stimulus to revive the economy.
• Consumer prices rose by 0.4% in September, while producer prices fell by 2.8%.
• China's headwinds include a burst property bubble, high youth unemployment, and threats to exports.

Chinese officials are under mounting pressure to stimulate the economy after official price data released Sunday stoked fresh deflation fears.

The consumer price index rose 0.4% year on year in September as bad weather pushed up food prices ahead of the Golden Week holiday. That was below the consensus estimate of 0.6%, which would have matched the rate of price growth in August.

The producer price index fell 2.8% compared with September last year — the sharpest drop in six months and up from 1.8% in August.

Prices have stagnated because of a slew of economic headwinds that are weighing on domestic demand:

• Slowing economic growth threatens to stall wage growth and spark layoffs, when youth unemployment is already at a historical high and a regulatory crackdown on Big Tech has narrowed an attractive career avenue.
• Exporters are worried about countries like the US imposing even higher tariffs on their goods and cutting off manufacturers' access to critical technologies such as advanced microchips.
• People are concerned about their home values as China's massive property bubble has burst and sent shockwaves through the economy that have squeezed local governments' budgets and affected industries such as construction.

Even with those drags, Goldman Sachs has raised its GDP-growth forecast for China from 4.7% to 4.9% this year — just shy of the government's 5% target — and from 4.3% to 4.7% next year, Bloomberg reported.

The investment bank's analysts cited the government's planned stimulus package, which has somewhat revitalized Chinese stock markets despite officials offering limited details.

China's leader, Xi Jinping, may be wary of overstimulating the economy as aggressive government support was a key contributor to the property bubble.

"China didn't pull out the fiscal bazooka" at a press conference on Saturday, Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said in a note Monday morning.

"Xi doesn't like market euphoria and investors don't like the fact that the ample monetary stimulus may not be channeled toward the right places in the absence of an efficient and comprehensive fiscal package," Ozkardeskaya added. "But both agree that China needs stimulus to overcome the deepening property crisis and fight deflation."