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China Faces Deflation as Consumer Prices Decline for First Time in Over a Year

February's 0.7% drop in consumer prices highlights weak domestic demand and intensifying economic challenges, including a trade dispute with the U.S.

Customers select tomatoes at a stall inside a morning market in Beijing, China August 9, 2023. REUTERS/Tingshu Wang/File Photo
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Delegates and security wait before the opening session of the National People's Congress at the Great Hall of the People in Beijing, China, on March 5, 2025.
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Overview

  • China's consumer price index (CPI) fell 0.7% year-on-year in February, marking the first decline in 13 months and outpacing economists' forecast of a 0.5% drop.
  • The decline was partially influenced by the early timing of the Lunar New Year, which shifted seasonal spending patterns and contributed to a high base effect from the previous year.
  • Core inflation, excluding volatile food and energy prices, fell 0.1% year-on-year, the first contraction in core CPI since 2021, reflecting persistently weak domestic demand.
  • China's producer price index (PPI) also contracted for the 29th consecutive month, falling 2.2% year-on-year in February, underscoring pressure on manufacturers to cut costs.
  • Beijing has set a lower inflation target of 2% for 2025 and announced plans to boost consumption and fiscal stimulus, but analysts warn of ongoing deflationary risks and challenges from an escalating trade conflict with the U.S.