China’s inflation picked up pace in January, hitting a five-month high, but factory prices remained in the red, painting a mixed picture of the economy.
Consumer spending showed some life, yet industrial overcapacity and weak demand kept producer prices in a downward spiral.
The Consumer Price Index (CPI) rose 0.5% from a year earlier, an uptick from December’s 0.1% increase, surpassing economists’ forecasts of 0.4%, according to the National Bureau of Statistics.
Core inflation, which strips out volatile food and fuel prices, inched up to 0.6% from 0.4% in December.
Despite this, analysts caution that China’s deflationary pressures will linger unless policymakers reignite domestic demand, especially with fresh U.S. tariffs threatening exports.
Seasonal effects played a role, as this year’s Lunar New Year fell in January, a month earlier than in 2024. The holiday rush pushed up prices for travel and entertainment—airfare climbed 8.9%, tourism costs rose 7%, and movie tickets jumped 11%.
However, despite the holiday buzz, consumer sentiment remains fragile. Per capita holiday spending grew just 1.2%, a stark slowdown from the 9.4% jump seen the previous year, according to ANZ analysts.
China’s broader inflation picture remains subdued. The CPI edged up just 0.7% from December, slightly below forecasts, while full-year inflation for 2024 came in at 0.2%, missing the government’s 3% target for the 13th consecutive year.
Meanwhile, factory-gate prices showed no signs of recovery. The Producer Price Index (PPI) fell 2.3% year-over-year in January, mirroring December’s decline and outpacing the expected 2.1% drop.
China’s industrial sector has now endured 28 straight months of deflation, underscoring the challenges of oversupply and weak global demand.
With manufacturing contracting and service activity slowing, calls for additional stimulus are growing louder.
Yet Beijing is unlikely to shift its fiscal or monetary stance before its annual parliament session in March, said Zhiwei Zhang, president of Pinpoint Asset Management.
“For policymakers, external uncertainty seems to rank higher than domestic economic challenges at this stage,” Zhang noted.
Despite the pressure, China’s leadership is expected to stick to its 5% growth target for 2025. But with U.S. tariffs poised to weigh on exports—one of the few bright spots last year—the road ahead remains uncertain.
Many in the business community are watching closely for policy shifts that could restore confidence in the economy.
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