In China, consumer inflation showed a decrease, which turned out to be more widespread than preliminary expectations regarding the dynamic of this indicator, and fell below zero for the first time in 13 months, an assessment skewed by seasonal distortions, but also a signal of continued deflationary pressure on the economic system of the Asian country, which is the second-largest in the world.
The consumer price index in China in February demonstrated a decline of 0.7% year-on-year. In January, this indicator increased by 0.5%. The relevant information was published by the Chinese National Bureau of Statistics last Sunday, March 9th. The consensus forecast of analysts, according to the media survey, envisaged that the mentioned index in February in the Asian country would decrease by 0.4%.
When adjusted for the effect of an earlier-than-usual Lunar New Year holiday, consumer inflation in China slowed in February anyway to one of the lowest levels in several months. This is evidenced by Goldman Sachs data. One of the symptoms of sluggish consumption in China was a decrease in prices for services combined with rare negative core inflation indicators.
The core consumer price index in the Asian country, which does not take into account such volatile items as food and energy, declined by 0.1% in February for the first time since 2021. This indicator decreased for the second time in more than 15 years. Factory deflation in the Asian country extended into the 29th month.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said that China’s economic system is still facing deflationary pressure. It was also noted that domestic demand in the Asian country remains weak.
The Chinese National Bureau of Statistics said that a key factor for the decline in inflation was the effect of a high base from a year earlier, generated by elevated prices caused by spending during the Lunar New Year.
According to a statement released on Sunday by the statistical bureau of the Asian country, when accounting for seasonality, consumer inflation actually increased by 0.1% in February compared with the indicator for the same period in 2024. Estimates by Goldman Sachs economists suggest that the earlier holiday was the reason for a 0.7% year-on-year decline in the consumer price index last month.
A clearer picture of the inflation trajectory in the Asian country will be formed towards the end of the current month. Nowadays, investors are eager to see signs that the Chinese government’s stimulus measures are translating into stronger domestic demand. It’s worth noting that the Asian country is currently on track for the longest streak of economic-wide price drop since the 1960s because of weak spending. At the same time, the property crash in China has yet to bottom out.
The Asian country’s economy has a significant margin of safety. However, its prospects are not positive, or at least significantly positive. In this context, it is worth noting that China is already actually entering into a trade war with the United States, as evidenced by mutual import tariffs. The emerging configuration of reality in the international trade space is definitely not favorable for the world’s second-largest economy. In this case, it is worth mentioning that last year exports became one of the main driving forces behind the growth of China’s gross domestic product (GDP) last year.
Beijing has set its inflation target at the lowest level in 20 years and now aims to bring consumer price growth to around 2% in 2025. It is worth noting that China’s previous inflation target was 3%. The change in this indicator, as noted by the media, is evidence that the authorities of the Asian country are finally realizing the deflationary pressure exerted on the world’s second-largest economy. Consumer inflation in China has stuck at just 0.2% over the past two years.
The data released on Sunday shows weak demand within the Asian country and the need for Beijing, as a political center, to implement the pledged stimulus measures as quickly as possible. The absence of large-scale stimulus in the future will mean continued deflationary pressure on the world’s second-largest economy.
Last week, China set an economic growth target of about 5% in 2025. It is worth noting that Beijing intends to achieve the mentioned goal at a time of increasing geopolitical tensions, one of the forms of which is the trade war. China also laid out plans to boost fiscal incentives and domestic consumption.
Preliminary calculations by the media indicate that the nominal growth of the Asian country’s economy at about 5% in the current year is most likely to be achieved. This means that Beijing’s goal is probably to become a reality. At the same time, one should not exclude the possibility of various kinds of surprise factors. For example, there is a risk of scaling a trade war during the current year, which will mean additional losses for Beijing, which may have a significant impact in the context of the final result of GDP growth in the Asian country.
