China's CPI falls in February adding to slowing economy

While many other countries wrestle with inflation, China's policymakers face flat to falling prices, and the possibility they could evolve into a deflationary spiral that would drag down the economy.

The Chinese government stressed the need to increase domestic demand and consumer spending in an annual report last week to its ceremonial legislature, the National People's Congress, but held back on unveiling any dramatic new steps to boost the economy.

The Lunar New Year, a time when spending rises for travel, dining out and entertainment, came in late January this year instead of February, as it's based on the cycles of the moon. Holiday spending helped drive the consumer price index up 0.5 per cent in January, but it then fell last month compared to 2024's elevated level.

Factoring out the impact of the holiday, the index rose 0.1 per cent last month, Dong Lijuan, a statistician at the government's statistics bureau, said in a written analysis.

That is still far lower than ideal. Last week's government annual report included an inflation target of two per cent for this year, but it is likely to fall far short of that goal. The consumer price index was flat in 2024, rising 0.2 per cent.

A burgeoning trade war with the United States could add to China's economic headwinds.

Besides the early Lunar New Year, two other factors contributed to falling prices in February, Dong said: Better weather boosted farm production, driving down the price of fresh vegetables and automakers also stepped up promotions to try to boost sales, reducing prices for new cars.

The producer price index, which measures the wholesale price of goods, fell 2.2 per cent in February, the statistics bureau said.

Producer prices have been falling more sharply than consumer prices, putting pressure on companies to cut labour and other costs.