China’s consumer inflation accelerated in January to its fastest pace in five months, while factory prices remained in deflation, highlighting a fragile economic recovery. The mixed data reflects weak consumer spending and sluggish industrial demand, with U.S. tariffs adding pressure on Beijing to stimulate growth.
Consumer Prices Show Modest Gains
- The Consumer Price Index (CPI) rose 0.5% in January from a year earlier, up from December’s 0.1% increase.
- Core inflation, which excludes food and fuel, accelerated to 0.6%, up from 0.4% in December.
- Prices of airline tickets (+8.9%), tourism services (+7.0%), and entertainment (+11.0%) spiked during the Lunar New Year.
Despite the uptick, inflation remains well below China’s official 3% target, marking the 13th consecutive year of missed inflation goals.
Deflationary Pressures Persist in Manufacturing
- The Producer Price Index (PPI) dropped 2.3% in January, extending a 28-month streak of deflation.
- Overcapacity in industrial goods continues to weigh on factory-gate prices.
“It will take a few quarters to get out of deflation,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
Weak Consumer Spending Amid Economic Uncertainty
Despite increased travel and shopping during the holiday season, spending remains soft:
- Per capita spending rose just 1.2% during the Lunar New Year, down from 9.4% in 2024.
- Concerns over wage growth and job security are holding back consumer confidence.
China’s Economic Outlook Faces Headwinds
Beijing is expected to maintain its 5% GDP growth target for 2025, but new U.S. tariffs threaten one of the economy’s few bright spots: exports.
Policymakers are unlikely to introduce new monetary or fiscal measures before China’s annual parliamentary session in March. However, analysts warn that additional stimulus may be needed if economic conditions worsen.
“For policymakers, external uncertainty seems to rank higher than domestic economic challenges at this stage,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Conclusion
While consumer inflation is rising modestly, China’s economy remains under pressure from weak domestic demand, deflationary factory prices, and external risks from U.S. trade policies. With economic uncertainty lingering, Beijing faces growing calls for stronger stimulus measures to stabilize growth.
