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In February, China experienced its first decline in consumer prices in 13 months, with data skewed by seasonal factors indicating ongoing deflationary pressures on the world’s second-largest economy.
The National Bureau of Statistics reported a 0.7% drop in the consumer price index from a year ago, surpassing economists’ expectations of a 0.4% decrease in a Bloomberg survey.
The unusual timing of the lunar new year holiday was cited as the primary cause for the decrease. Prices typically rise during this holiday, which occurs on varying dates each year, due to increased consumer spending on travel and food.
This year, the holiday began on January 29, compared to February 10 the previous year. Adjusting for the lunar new year shift, the NBS estimated a 0.1% increase in consumer prices, indicating a slight price recovery.
A drop in food costs contributed to the decline in prices in February, with an increase in fresh vegetable supplies following the holiday resulting in a 12.6% decrease in prices.
Excluding volatile food and energy costs, China’s core CPI experienced its first decline since 2021, dropping by 0.1%. The data also highlights pricing pressure in the competitive electric vehicle market, where prices fell by 6% year-on-year.
Economists will closely monitor the upcoming data release to assess the impact of Beijing’s efforts to stimulate the economy, such as the Rmb300bn ($40bn) subsidy program for appliance purchases, on consumer and corporate spending.
During the government’s annual review of economic objectives and policies, Beijing announced a GDP growth target of “around 5%” for 2025. It also revealed Rmb4.4tn in special local government bonds for infrastructure and other investments, along with Rmb1.3tn in special central government bonds, slightly below expectations.
In response to significant deflationary pressures, Beijing set its lowest inflation target in over two decades for 2025, aiming for consumer price growth of approximately 2%, down from last year’s 3% target.