China’s consumer price index (CPI) recorded its steepest decline in 13 months, dropping 0.7% year-on-year in February, falling short of expectations. The decline was attributed to fading seasonal demand and weak consumer spending amid concerns over job security and income stability. Producer price deflation also persisted, reflecting ongoing economic challenges.
Despite Beijing’s recent pledge to stimulate consumption, deflationary pressures continue to weigh on the economy. The government has set a 5% economic growth target for 2025, unchanged from the previous year, while lowering its inflation target from 3% to 2%.
Core CPI, which excludes volatile food and fuel prices, dipped 0.1%, marking its first decline since January 2021. Food prices fell 3.3% compared to a 0.4% increase in January, primarily due to the shift in Lunar New Year celebrations from February to January.
To boost household spending, China has expanded its consumer subsidy program for electric vehicles, home appliances, and other goods to 300 billion yuan ($41.42 billion). However, concerns over an incomplete welfare system and economic uncertainty continue to suppress consumer confidence.
The producer price index (PPI) dropped 2.2% year-on-year in February, marking the 18th consecutive month of decline. With ongoing global trade tensions and domestic industrial overcapacity, Chinese exporters are facing increasing price competition, leading to further price cuts and wage reductions.
Experts believe stronger fiscal and monetary policies, including interest rate and reserve requirement ratio cuts, may be necessary to address these economic headwinds and support growth.
