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China’s inflation drops below zero for the first time in 13 months

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CHINA: China’s consumer inflation dropped more than expected, falling below zero for the first time in 13 months, reflecting signs of deflationary pressures in the country’s economy, Bloomberg reported.

On Sunday, the National Bureau of Statistics reported that the consumer price index (CPI) dropped 0.7% compared to the previous year. This was lower than analysts’ predictions, which had forecast a 0.4% decline. In January, the CPI had increased by 0.5%

Goldman Sachs Group noted that even after adjusting for the earlier Lunar New Year holiday, consumer inflation slowed to one of its weakest levels in recent months. The drop in services prices and a rare negative reading for core inflation highlighted slow consumer spending.

China’s core CPI, which excludes food and energy, fell by 0.1%, marking its first decline since 2021 and only the second such drop in over 15 years. Meanwhile, factory deflation continued for the 29th consecutive month.

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Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said deflationary pressure remains a concern as “domestic demand remains weak.”

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The statistics bureau explained that inflation figures were skewed by seasonal factors, notably the Lunar New Year holiday. This year, the holiday ran from Jan 28 to Feb 4, while last year, it fell entirely in February.

The bureau estimated that without the seasonal impact, consumer inflation would have risen by 0.1% year-on-year (YoY) in February, according to a statement released on Sunday. Goldman Sachs economists estimated that the earlier holiday lowered the YoY CPI figure by 0.7 percentage points in February.

Economists expect clearer inflation data in March, which may reveal whether government stimulus efforts are improving domestic demand. Despite Beijing’s efforts to boost growth, China is facing its longest period of economy-wide price declines since the 1960s due to weak consumer spending and its ongoing property crisis.

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China recently set its inflation target at around 2% for 2025, down from its previous 3% target — the lowest inflation target in over 20 years.

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Bloomberg economist David Qu warned that China’s weaker-than-expected February price data show weak demand and an urgent need for stronger policy measures. He said, “Without a powerful boost from fiscal and monetary policies, deflationary pressures will continue to weigh on the economy.”

During its annual parliament session on Wednesday, China set a growth target of about 5% for 2025 despite rising trade tensions with the US. Beijing also announced plans to boost fiscal stimulus and encourage domestic spending.

However, Bloomberg calculations suggest that nominal economic growth may still hover around 5% this year, indicating that officials expect little to no overall inflation. /TISG

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Read also: China takes dispute to World Trade Organization over Trump’s tariffs

Featured image by Depositphotos

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