Consumer prices in China have dropped to their lowest level in over a year, reflecting ongoing deflationary pressures in the world’s second-largest economy.
According to the National Bureau of Statistics (NBS), the Consumer Price Index (CPI), which measures inflation, fell by 0.7% in February compared to the previous year. This drop was larger than expected, reversing a 0.5% increase in January and marking the first contraction since January 2024.
Deflation poses a challenge as it discourages people from spending, anticipating further price decreases. This tends to reduce consumption, a key driver of economic growth.
The February drop was partly due to an earlier-than-usual Lunar New Year holiday, during which millions of people traveled, boosting tourism and spending. This year, the holiday occurred entirely in January, while last year it extended into February, creating a higher comparison base.
Excluding the holiday impact, the NBS stated that consumer prices would have risen by 0.1%. The country’s core CPI, which excludes volatile items like food and fuel, also fell by 0.1%, marking the first decrease since January 2021.
At the same time, the Producer Price Index (PPI), which tracks wholesale prices, decreased by 2.2% in February from the previous year. Factory-gate prices have been in decline for 29 consecutive months since October 2022.
“Aside from temporary seasonal distortions, both CPI and PPI inflation have been too low over the past two years, highlighting the supply and demand imbalance in China’s economy,” economists at Goldman Sachs wrote in a research note on Sunday.
China’s economy remains under pressure due to weak consumer spending, uncertain employment prospects, and a prolonged downturn in the property sector. On the international front, it faces additional challenges as the U.S. intensifies its trade conflict with China, which has traditionally relied on exports for economic growth.
“The uncertainty of the external environment is increasing, and we also face issues like insufficient domestic demand and operational difficulties in some industries,” said Zheng Shanjie, head of China’s National Development and Reform Commission, during a press conference last week.
Beijing has set a 5% economic growth target for 2025, the same as last year. It has also lowered its consumer price increase target for this year to 2%, down from 3% last year, acknowledging the ongoing deflationary pressure.
However, during the much-anticipated opening of the legislative session last week, the government did not announce large-scale stimulus measures to support growth, despite stressing the need to boost consumption.
At a press conference during the National People’s Congress on Sunday, Wang Xiaoping, the minister of human resources and social security, acknowledged that stabilizing and expanding employment this year will be a “challenging” task under significant pressure.
Ni Hong, the minister of housing and urban-rural development, emphasized that the government is working tirelessly to stabilize and restore confidence in the real estate sector.
He also highlighted the allocation of 4.4 trillion yuan ($608 billion) in local government special bonds this year, part of which will be used to acquire completed commercial housing. These acquired properties will be converted into affordable housing and dormitories for workers.