Consumer prices in China dropped sharply last month for the first time since January 2024, official data showed Sunday, as authorities in the world's second-largest economy struggle to encourage more spending, adding to persistent deflationary risks.
The fall comes as Beijing seeks to boost domestic consumption, which has yet to recover from the pandemic.
Adding to the pressure is a second term of U.S. President Donald Trump, who has since taking office in January slapped sweeping tariffs on Chinese products.
Beijing's latest retaliatory measures -– tariffs targeting U.S. agricultural goods including corn and chickens – are set to take effect on Monday.
An intensified trade war will likely mean that China cannot peg its hopes for strong economic growth this year on its exports, which last year reached record highs.
The consumer price index (CPI) – a key measure of inflation – was down 0.7% year-over-year in February, according to data released by the National Bureau of Statistics (NBS).
The reading represented a steeper decline than the slump of 0.4% in the index forecast by a Bloomberg survey.
It also reversed the 0.5% uptick recorded in January, when a surge in spending during the Lunar New Year boosted inflation to its highest rate in months.
"This is mainly due to the impact of factors such as the (Lunar New Year) being in a different month, holidays and price fluctuations of some international staple commodities," said Dong Lijuan of the NBS in a statement.
Beijing last week vowed greater efforts to boost consumption in the face of an escalating trade war with the U.S., but analysts expect deflationary pressures to persist.
The government set the 2025 economic growth target at around 5%, unchanged from last year, while lowering the annual inflation target to around 2% from around 3% last year.
Food prices fell 3.3% last month, versus a 0.4% rise in January. The Lunar New Year, the country's biggest annual holiday, fell in late January compared with February last year, leading to higher food prices and tourist-related services prices in January.
CPI fell 0.2% month-on-month, against a 0.7% rise in January and below a predicted 0.1% drop.
Core inflation, excluding volatile food and fuel prices, fell 0.1% in February, in contrast to a 0.6% rise in January.
To revive sluggish household demand, China has doubled its allocation to an expanded consumer subsidy program for electric vehicles, home appliances and other goods to 300 billion yuan ($41.42 billion) this year.
But more profound measures to address the welfare system are still some way off, leaving consumers and businesses wary of spending amid a sputtering economic rebound.
Reflecting such caution, per capita spending during the recent holidays grew only 1.2% from a year earlier, analysts at ANZ said in a note.
The main problems lie in "weak consumption capacity and willingness," Commerce Minister Wang Wentao said on Thursday on the sidelines of the annual parliamentary meeting.
In this year's government work report unveiled on Tuesday, consumption was mentioned 31 times, up from 21 last year, surpassing references to technology.
The producer price index (PPI) fell 2.2% on year in February, easing from a 2.3% slide in January, but missing the forecast 2.1% decline.
"China's economy still faces deflationary pressure," wrote Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
"As exports face downside risk with trade war looming, the fiscal policy needs to become more proactive," he said, adding that "domestic demand remains weak."
China last year saw exports surge to a record high, a key economic lifeline as persistent woes including slow consumption and a property sector crisis weighed on activity.
Experts say the full impact of a renewed trade war with the United States on China's economy remains to be seen, but early signs are already emerging.
The country's exports grew 2.3% year-on-year during the first two months of 2025, official data showed Friday, missing expectations and slowing down significantly from the 10.7% growth recorded in December.
