China Consumer Inflation Jumps to Three-Year High as Producer Deflation Eases

China’s consumer prices rose at the fastest pace in more than three years in February, driven largely by a surge in spending during the extended Lunar New Year holiday.

Data released by the National Bureau of Statistics showed that the country’s consumer price index (CPI) increased 1.3% year-on-year, exceeding economists’ expectations of a 0.8% rise. The increase followed a modest 0.2% gain in January and marked the strongest inflation rebound since early 2023.

On a monthly basis, consumer prices climbed 1% in February, also surpassing forecasts that had anticipated a 0.5% rise.

Core inflation, which excludes volatile food and energy prices, rose 1.8% compared with a year earlier, reaching its highest level since 2019. The data suggests that underlying price pressures are strengthening modestly even as broader economic momentum remains uneven.

Much of February’s inflation surge was concentrated in the service sector, where demand typically rises during the Lunar New Year travel period. Prices for services increased 1.1% from a year earlier, with higher spending on travel, dining, entertainment, vehicle maintenance and pet services contributing significantly to the overall CPI increase.

This year’s holiday period, which lasted from Feb. 15 to Feb. 23, was the longest on record, amplifying seasonal spending and temporarily boosting consumer demand.

While consumer prices accelerated, producer prices continued to decline, though at a slower pace. China’s producer price index (PPI) fell 0.9% from a year earlier, a smaller drop than economists had expected and the mildest contraction in more than a year.

Rising costs for metals and other commodities helped stabilize factory-gate prices, suggesting that the long-running deflationary pressure on industrial producers may be easing gradually.

Commodity price increases were partly linked to geopolitical developments. Escalating tensions in the Middle East pushed up global energy and precious metals prices, contributing to higher gasoline and gold jewelry prices in China. Prices for gold and silver refining also surged sharply, while costs in the oil and gas extraction sector climbed.

Despite the inflation rebound, policymakers remain cautious about the strength of domestic demand. China has kept its official inflation target at around 2% for 2026, the lowest level in more than two decades. The goal reflects ongoing concerns about weak consumer confidence and persistent price competition across several industries.

Last year, overall consumer inflation remained largely flat, highlighting the challenges Beijing faces in stimulating household spending.

At the same time, China has lowered its GDP growth target to a range between 4.5% and 5%, the least ambitious target in decades. Authorities are seeking to balance economic stability with structural reforms while navigating geopolitical uncertainties.

To support consumption, the government has allocated 250 billion yuan to a consumer trade-in subsidy program and created an additional 100 billion yuan fund aimed at encouraging private investment and spending.

Economists expect policymakers to proceed cautiously with stimulus measures. Some analysts believe stronger fiscal support may be needed if exports weaken or global economic conditions deteriorate.

For now, exports and manufacturing remain key drivers of China’s growth outlook. But analysts warn that prolonged geopolitical tensions or disruptions in global trade could eventually force Beijing to step up domestic stimulus efforts to sustain economic momentum.