Now headed for a seventh consecutive quarter drop, China’s consumer price fall of 0.1% in March puts the economy on track to equal a record deflationary streak set in the Asian Financial Crisis in the late 1990s.
To the uninitiated, deflation describes a situation in which prices for goods and services fall across an economy.
In addition to the CPI, the other typical measures of deflation include the producer price index. This measures changes in industrial products sold by manufacturers.
In China, producer prices appear vulnerable to the twin forces of declining raw material costs and waning overseas orders.
Then there’s gross domestic product which provides the broadest measure of prices across the economy.
Continued price declines suggest stimulus measures by policymakers to shore up growth are yet to flow through to the economy.
In March, Chinese Premier Li Qiang identified boosting consumption as the top task for the year ahead, as the country set an ambitious target of around 5% growth.
That’s the first time in a decade Beijing has given consumption such a high priority, noted Laura Wang, chief China equity strategist at Morgan Stanley.
Tariffs add to angst
Added to policymakers’ concern is the potential threat to already weak consumer spending power following U.S. President Donald Trump’s 145% tariff on the Middle Kingdom.
While Beijing responded with an 84% retaliatory tariff, economists warn the trade war’s escalation will further weigh on China’s industrial output and global competitiveness.
Meanwhile, to combat a tightening of regulations on high-paying industries from tech to finance - which led to lay-offs and salary cuts - China pursued a policy push to develop manufacturing and high-tech goods that led to increased production.
However, weak demand for the goods has forced businesses to mark down prices.
But in a bid to spur domestic consumption, Chinese policymakers in March also doubled subsidies for a consumer trade-in program to 300 billion yuan ($41.47 billion) this year.
The subsidies will contribute towards around 15% to 20% of the purchase price for selected products, including mid-range smartphones and home appliances.
Tianchen Xu, a senior economist at the Economist Intelligence Unit expects the gap between consumer and producer prices to widen further due to trade disruptions and weaker external demand.
The numbers
The Consumer Price Index (CPI) fell 0.1% year-on-year in March, following a 0.7% decline in February, according to data released yesterday by the National Bureau of Statistics (NBS).
The fall missed economists’ expectations for a flat-line number, which only underpinned persistent weakness in underlying consumer demand.
March producer prices fell 2.5% year-on-year, marking the 29th consecutive monthly drop and the steepest contraction since November 2024.
Meanwhile, core inflation, which excludes volatile food and energy prices, rose 0.5%, up from a 0.1% contraction in February.
While this is a positive signal, the figure remains below January’s 0.6% growth and further entrenches the slow domestic recovery.
Pork up, veggies, beef, eggs down
According to China’s National Bureau of Statistics (NBS) the monthly CPI dip (down 0.4% from February) can be attributed to seasonal factors, including lower food and travel prices and declining international oil prices.
Food prices fell 1.4% year-on-year, while vegetables, beef, and eggs experienced the sharpest declines.
However, pork prices climbed 6.7%.
Despite deflationary signals, China participated in Thursday’s global share market rally. This was in response to Trump’s decision to pause imposing tariffs on most U.S. trade partners for 90 days.
Mainland China’s CSI 300 index rose 1.6%, while Hong Kong’s Hang Seng surged 3.9%.
