During February, consumer inflation in China saw its strongest increase in over three years, following a surge in spending during an extended Lunar New Year holiday. The climb outpaced market estimates and coincided with a slowdown in producer price deflation, offering signs of improving domestic demand.
Data released by the National Bureau of Statistics on Monday showed the Consumer Price Index (CPI) rose 1.3% year-over-year in February, exceeding a 0.8% rise projected in a Reuters survey and accelerating from January’s 0.2% gain. This marks the fastest annual growth since early 2023, according to records from LSEG. On a monthly basis, prices increased by 1%, double the 0.5% advance predicted by economists.
Core inflation—which excludes food and energy—rose 1.8% compared to the previous year, its strongest pace since March 2019. Service sector prices contributed notably to overall inflation, climbing 1.1% from the prior year and making up over half a percentage point of headline CPI growth. This rise was attributed to heightened demand during the Lunar New Year break, with strong spending on leisure, travel, auto services, and dining.
In 2026, the Lunar New Year holiday stretched from February 15 to 23, the longest in China’s history, compared to last year’s shorter celebration spanning late January to early February.
Meanwhile, the Producer Price Index (PPI) recorded a 0.9% decline on the year, less severe than economists’ prediction of a 1.2% decrease. This reflected stabilization in factory-gate prices as the costs for metals and other key commodities rebounded.
Beijing maintained its annual CPI inflation objective at “around 2%” for 2026—the lowest target in over 20 years, as officials continue to prioritize domestic demand amid competitive pricing pressures and muted consumer sentiment. In 2025, headline consumer prices remained flat, and core inflation stood at 0.7%.
The government also revised its GDP growth target for 2026 lower, now ranging from 4.5% to 5%—the most modest goal set since the early 1990s—citing ongoing deflationary risks and persistent geopolitical uncertainty.
To stimulate consumption, the central budget this year earmarked 250 billion yuan ($36.2 billion) for trade-in subsidies, lower than last year’s 300 billion yuan allocation, and introduced a 100 billion yuan fund to encourage private investment and household spending.
Macquarie chief China economist Larry Hu observed that these measures are likely to be rolled out gradually, with authorities viewing weak consumption as a long-term issue. According to Hu, officials may only intensify stimulus efforts if weakening exports threaten growth targets.
Geopolitical concerns, especially the continuing conflict in the Middle East, have contributed to price gains in several sectors. Jewelry and gasoline prices saw increases of 6.2% and 3.1% on-year, respectively, in February. Producer prices for precious metals and energy extraction also rose, driven by global market turbulence caused by the conflict.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, indicated that the impact from rising factory-gate prices due to Middle East tensions could persist into March. Zhang warned that a prolonged conflict might necessitate a stronger fiscal response from Beijing if instability continues into the second quarter.
