China's consumer price index in February missed expectations and fell at the sharpest pace in 13 months, while producer price deflation persisted, as seasonal demand faded and households remained cautious about spending amid job and income worries.
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 in the world's second-largest economy to drag on.
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.
The consumer price index (CPI) fell 0.7% last month from a year earlier, reversing January's 0.5% increase, data from the National Bureau of Statistics (NBS) showed on Sunday.
It was the first contraction in the index since January 2024, and worse than a 0.5% slide estimated by economists in a Reuters poll.
"China's economy still faces deflationary pressure. While sentiment was improved by the developments in the technology space, domestic demand remains weak," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
As exports face risks from the trade war, fiscal policy needs to become more proactive, he said, noting that China's property sector also continues to struggle.
"Monetary policy also needs to be loosened further with interest rate and reserve requirement ratio cuts, as indicated by the government work report."
Core CPI, excluding volatile food and fuel prices, fell 0.1% in February, the first fall since January 2021.
Food prices fell 3.3% last month, versus a 0.4% rise in January. Lunar New Year celebrations, 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.
NBS statistician Dong Lijuan said in a note on Sunday that the high base of last February's CPI brought about the fall of the index last month: "If excluding the impact of the different months of the Lunar New Year, CPI rose by 0.1% year-on-year in February."
On a month-on-month basis, CPI fell 0.2%, against a 0.7% rise in January and below a predicted 0.1% drop.
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 its incomplete welfare system are still some way off, leaving consumers and businesses wary of spending amid a sputtering economic rebound.
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 fell 2.2% on-year in February, easing from a 2.3% slide in January and the smallest contraction in six months, but missing the forecast 2.1% decline.
China's producer prices have been falling since September 2022.
Global tariff threats and industrial overcapacity at home are pushing Chinese exporters into price wars all over the world, forcing many of them to cut prices of their products and wages.
($1 = 7.2425 Chinese yuan renminbi)
