For the first time in 13 months, China’s consumer inflation has fallen below zero, raising concerns about deflationary pressures in the world’s second-largest economy.
According to data released by the National Bureau of Statistics (NBS) on Sunday, the consumer price index (CPI) declined by 0.7% in February compared to the previous year. This was steeper than the expected 0.4% drop forecasted by economists.
While seasonal distortions from the Lunar New Year holiday played a role, experts warn that weak domestic demand and a struggling property market are contributing to a prolonged period of economic slowdown.
Key Takeaways from China’s Inflation Report
- Consumer Price Index (CPI) fell 0.7% year-on-year in February, reversing a 0.5% gain in January.
- Core CPI (excluding food and energy) dropped 0.1%, marking only the second decline in 15 years.
- Factory deflation continued for the 29th straight month, highlighting weak industrial demand.
- Adjusted for seasonal swings, inflation rose just 0.1%—indicating stagnant price growth.
- China lowered its inflation target to 2% for 2025, down from the previous 3% goal.
Why Is China’s Inflation Falling?
1. Weak Domestic Demand
China’s economic slowdown has led to reduced consumer spending, limiting price increases.
“China’s economy still faces deflationary pressure,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
2. Property Market Crisis
The ongoing real estate slump continues to impact household wealth and investment, further weakening demand.
3. Lunar New Year Effect
- The 2025 Lunar New Year started earlier than usual, causing a higher base effect in February’s inflation data.
- In 2024, the festival boosted spending in February, making this year’s numbers appear weaker.
What’s Next for China’s Economy?
1. Government’s 2025 Economic Growth Target: 5%
At the annual parliamentary session, China reaffirmed its 5% GDP growth target, despite deflation risks and rising US-China trade tensions.
2. Urgent Need for Stimulus Measures
- Economists warn that without strong monetary and fiscal policies, deflation will continue to weigh on growth.
- David Qu, economist at Bloomberg, stated:
“China’s weaker-than-expected price data highlight slack demand and an urgent need for policymakers to deliver on pledged stimulus quickly.”
3. Investors Await March Data for Clearer Trends
March’s inflation report will provide a clearer picture of whether China’s stimulus efforts are starting to revive demand and prices.
China’s deflationary pressures remain a major concern, with weak consumer demand and a fragile property sector weighing on prices. While the Lunar New Year effect partially influenced the February data, the government faces growing urgency to implement effective stimulus measures.
With an ambitious 5% GDP growth target and lower inflation expectations, Beijing is preparing for another challenging year in economic recovery.
