Consumer prices in China declined in February for the first time in 13 months, driven by weak demand and the early timing of the Lunar New Year holiday.
According to the National Bureau of Statistics, the consumer price index fell 0.7% in February compared to the same month last year. On a monthly basis, prices dropped by 0.2% compared to January.
While many other countries are dealing with inflation, China is facing stagnant or declining prices, raising concerns about a potential deflationary spiral that could negatively impact the economy. In a report to its ceremonial legislature, the National People’s Congress, the government emphasized the need to boost domestic demand and consumer spending but refrained from announcing any significant new measures to stimulate the economy.
The Lunar New Year, which typically leads to increased spending on travel, dining, and entertainment, occurred in late January this year instead of February, as it follows the lunar calendar. The surge in holiday spending contributed to a 0.5% rise in the consumer price index in January, but prices then dropped in February compared to the higher levels seen in 2024.
Excluding the effects of the holiday, the consumer price index increased by 0.1% in February, according to Dong Lijuan, a statistician at the government’s statistics bureau, in a written analysis.
This remains well below the ideal target. The government’s annual report last week set an inflation target of 2% for the year, but it is expected to fall significantly short of that goal. In 2024, the consumer price index remained largely unchanged, increasing by just 0.2%.
In addition to the early Lunar New Year, Dong highlighted two other factors that contributed to the decline in prices in February: favorable weather conditions improved agricultural production, lowering the cost of fresh vegetables, and automakers increased promotions to boost sales, leading to reduced prices for new cars.
The producer price index, which tracks the wholesale prices of goods, dropped by 2.2% in February, according to the statistics bureau. Producer prices have been declining more significantly than consumer prices, creating pressure on companies to reduce labor and other expenses.
The declining prices reflect both weak consumer spending and the rapid growth of factories producing electric vehicles, solar panels, and other green-energy products, driven by government subsidies.
Additionally, an escalating trade war with the United States could further complicate China’s economic situation, which is already dealing with a prolonged real estate market crisis that is undermining consumer confidence.
Government ministers, addressing journalists at the National People’s Congress on Sunday, assured that they would continue working to stabilize the real estate market. They also acknowledged that increasing employment in the current economic climate would be a challenging task.
Wang Xiaoping, the minister of human resources and social security, stated that while the employment situation is showing some signs of improvement, the foundation for economic recovery remains fragile. She pointed out that the pressure on overall employment remains unchanged, with people struggling to find jobs and increase their incomes.
For the real estate sector, Ni Hong, the minister of housing and urban-rural development, explained that part of this year’s 4.4 trillion yuan ($600 billion) in special local government bonds would be used to purchase completed but unsold housing projects. These will be repurposed into affordable housing, apartments for young people, staff dormitories, and other uses.
The government also plans to expand a program aimed at rehabilitating older housing, including adding all compounds built before 2000 to the urban renovation initiative.