China's Consumer Prices Fall Unexpectedly, Raising Deflation Concerns

China's Consumer Prices Fall Unexpectedly

China's consumer prices unexpectedly fell in February, marking the first decline in 13 months. This comes amid weak demand and the early Lunar New Year holiday.

The Consumer Price Index (CPI) dropped 0.7% year-on-year and 0.2% month-on-month. This contrasts with inflation in many other countries, posing a challenge for policymakers who fear deflation.

The government's annual report last week emphasized boosting domestic demand, but held back on new stimulus measures.

The early Lunar New Year, typically a period of increased spending, fell in late January this year, contributing to a 0.5% rise in the CPI then. Excluding the holiday's impact, the CPI rose 0.1% in February, still below the government's 2% inflation target for this year.

Improved weather and automaker promotions also contributed to lower prices in February.

The Producer Price Index (PPI), which measures the wholesale price of goods, fell by 2.2% in February, putting pressure on companies to cut costs.

The falling prices reflect weak consumer spending and a massive expansion of factories producing green-energy products, driven by government subsidies.

The ongoing trade war with the United States and a prolonged real estate market crisis could further challenge China's economy.

Government ministers pledged continued efforts to stabilize the real estate market and acknowledged the difficulty of expanding employment in the current environment.

To address the real estate situation, a portion of this year's special local government bonds will be used to purchase completed but unsold housing projects and convert them into affordable housing and other uses. The government will also expand a program to rehabilitate older housing.