(Bloomberg) — China’s consumer inflation dropped below zero for the first time in 13 months, a reading skewed by seasonal distortions but also a reminder of persistent deflationary pressures in the economy.
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The consumer price index declined by 0.7% in February from a year earlier, the National Bureau of Statistics said Sunday, compared with a 0.5% gain in the previous month. The median forecast of economists surveyed by Bloomberg was a 0.4% drop.
Factory deflation extended into a 29th month, though the producer price index recorded a slower drop of 2.2% compared to January’s negative 2.3%.
A key factor for the decline in inflation was likely the statistical effect of a high base from a year earlier, created by elevated prices caused by spending during the Lunar New Year — which had an earlier-than-usual start in 2025. The festival is a moving holiday that fell entirely in February 2024 but ran from Jan. 28 to Feb. 4 this year.
A clearer read on China’s inflation trajectory will emerge in March, as investors look for signs that the government’s stimulus is translating into stronger domestic demand. The country is on track for the longest streak of economy-wide price declines since the 1960s as a result of weak spending, while the property crash has yet to bottom out.
China has set its inflation target at the lowest level in over 20 years and now aims to bring consumer-price growth to around 2% in 2025 — down from the previous 3% target. It’s a signal top leaders are finally recognizing the deflationary pressures weighing on the world’s second-largest economy, with consumer inflation stuck at just 0.2% for the past two years.
What Bloomberg Economics Says…
“The weak price impulse will persist. The government’s 2% CPI objective for 2025 signals an increased priority on lifting demand to fight off deflationary risks.”
— Eric Zhu, economist. For full analysis, click here
Urgency has grown for the government to reflate the economy. At the annual parliament session Wednesday, China announced an ambitious economic growth goal of about 5% for 2025, despite the threat of an intensifying trade war with the US. Beijing also laid out plans to boost fiscal stimulus and domestic consumption.
Still, Bloomberg’s calculations based on China’s deficit estimates show nominal economic growth is expected to be around 5% this year, matching Beijing’s inflation-adjusted target. The outlook suggests officials anticipate little to no overall inflation.
