China’s inflation data for February 2025 shows a Consumer Price Index (CPI) of -0.7% year-on-year, falling into negative territory for the first time since January 2024. This compares to an expected -0.5% and a prior +0.5%.
The monthly CPI decreased by 0.2%, against an expectation of -0.1%, while the Producer Price Index (PPI) registered at -2.2% year-on-year, slightly worse than the expected -2.1% and the prior -2.3%. The National Bureau of Statistics attributes the CPI decline to a high comparison base from last year, alongside international commodity price volatility and beneficial weather for vegetable growth.
Impact Of Seasonal And External Factors
Additionally, cold weather adversely affected construction activities, reducing demand for building materials, while ample coal availability during holidays contributed to lower coal processing prices. In the broader context, the CPI showed a downtrend from August to December 2024, reflecting weak consumer demand, followed by a rebound in January.
Factory prices have been in deflation, indicating persistent challenges within the industrial sector despite government stimulus efforts. Data from previous months highlights a downward trend in both CPI and PPI, emphasising ongoing issues in China’s economic recovery.
These latest inflation figures indicate that deflationary pressure is deepening. Consumer prices have now dipped into negative territory on a year-on-year basis, marking the first such shift in over a year. It is also worth noting that the reported figure was weaker than expectations, suggesting that demand remains under strain. The decline from the previous month reinforces that price weakness is broad-based, with multiple sectors feeling the impact. A similar picture emerges on the industrial side, where factory prices remain subdued. Manufacturers are facing persistent pricing difficulties, indicating that prior stimulus measures have yet to generate a sustained recovery.
For those of us analysing derivative markets, these numbers prompt reconsideration of near-term positions. Inflation figures are often lagging indicators, but persistent contraction in both consumer and producer prices influences monetary direction, corporate margins, and commodity trends. The lower-than-expected readings reinforce concerns that domestic demand has yet to stabilise, despite earlier signs of resilience. While January’s CPI uptick suggested a potential shift, this latest data proves that any recovery remains uneven.
Weak Spending And Policy Implications
The National Bureau of Statistics attributes this weakness in part to external commodity price swings, suggesting that global factors are playing a role. At the same time, the impact of domestic supply conditions is clear. Lower coal processing prices, aided by sufficient availability during the holidays, indicate that cost-side relief is limiting overall price levels. Weak demand in the construction sector, exacerbated by cold weather, is another clear contributor. The real estate sector’s struggles are well documented, and softer demand for building materials aligns with ongoing concerns about broader economic momentum.
Factory-gate prices remain in deflationary territory for another month, and that is not an isolated occurrence. Shifts in producer prices reflect firms’ pricing power, and the inability to raise prices suggests that business confidence, cost pressures, and demand-side factors remain challenging. That aligns with the broader pattern observed late last year. Between August and December, consumer inflation was trending lower most months, indicating that weak spending has been a persistent issue.
Both retail consumers and manufacturers are evidently reluctant to absorb higher costs, and that will weigh on pricing dynamics in the coming weeks. Monetary policy expectations will be shaped by these figures, particularly as policymakers attempt to stabilise growth without prompting liquidity risks. Ongoing concerns about industrial margins will also influence corporate decisions on inventory and pricing strategies, which in turn affect market movements.
Given the softness in both consumer and factory prices, the broader economic recovery has yet to take hold in a convincing manner. The combination of weak demand and subdued producer pricing raises further concerns about how swiftly inflation could return to comfortable levels. Without a meaningful shift in domestic spending patterns, price growth is likely to remain constrained. This means that cost structures, demand-side factors, and external price movements must be considered when evaluating trades in the coming sessions.
