China's consumer inflation slowed to 0.7% in October while factory-gate prices jumped 5.7%, official data showed on Monday, widening the split between surging producer costs and weak household demand in the world's second-largest economy.

China's National Bureau of Statistics reported that the consumer price index rose 0.7% from a year earlier in October, down from 0.9% in September and below the 0.8% rise economists had expected. Consumer prices were flat month on month, in line with forecasts, after a 0.2% rise in September.

Core inflation, which strips out food and energy, eased to 0.8% from 1% in September, also undershooting forecasts of 0.9%. The figures point to subdued demand for services and non-essential goods, despite some support from spending around the National Day Golden Week holiday at the start of October.

The producer price index told a very different story. Factory-gate prices rose 5.7% from a year earlier, well above expectations of around 5.3% and up from 5% in September, when the reading had already reached a four-year high. The gap between producer and consumer inflation has now widened to around five percentage points.

The divergence matters because it squeezes manufacturers. Producer prices are being driven higher by energy and other input costs, while consumer prices show little sign of following. That suggests factories and retailers are absorbing much of the cost increase rather than passing it on to shoppers, a reflection of soft domestic demand and limited pricing power.

For policymakers in Beijing, the mix is awkward. Weak consumer and core inflation strengthens the case for further support for domestic demand. But the jump in producer prices limits room for aggressive easing and squeezes industrial profit margins at a time when firms are already facing higher energy costs linked to the war with Iran.

The data landed in the small hours of Monday in London, giving European markets their first hard reading on the Chinese economy this week. China is a key buyer of European goods, from German cars and machinery to French luxury products, so weak household demand there feeds directly into the outlook for European exporters. The Australian dollar, often traded as a proxy for Chinese demand, rose 0.36% to 0.6888 against the US dollar after the release, but the mixed figures failed to give it a strong lift.

Attention now turns to China's October trade data, due on Tuesday, which will show whether export strength can continue to offset sluggish spending at home. Credit and money supply figures follow later in the week. Beijing is also moving to shore up confidence in its stock market, with a recent State Council meeting calling for stronger capital market stabilisation mechanisms.

For investors in London and across Europe, the figures add to a busy week of data. United States consumer price figures arrive on Tuesday, and British third-quarter growth numbers are due on Thursday. The China numbers set an uncertain tone: factory costs are climbing fast, but the shoppers who would normally absorb them are still holding back.