China Slumps Into Deflation Again, With First Negative Core CPI Print Since 2021
by Zero Hedge
Monday, Mar 10, 2025 - 05:35 AM
After a year of modest, barely perceptible inflation, China's CPI tumbled back far more than expected to fall below zero for the first time in 13 months, an assessment skewed by seasonal distortions but also a sign of deflationary pressures persisting in the economy. Here is the summary:
CPI: -0.7% yoy (-3.5% mom annualized*) in February vs. Bloomberg consensus: -0.4% yoy; January: +0.5% yoy (-1.7% mom annualized).
Food: -3.3% yoy in February (-13.1% mom annualized*) vs. +0.4% yoy in January.
Non-food: -0.1% yoy in February (-2.1% mom annualized*) vs. +0.5% yoy in January.
PPI: -2.2% yoy in February (-1.3% mom annualized*) vs. GS: -2.2% yoy, Bloomberg consensus: -2.1% yoy; January: -2.3% yoy (-0.8% mom annualized).
In February, China's headline CPI inflation fell to -0.7% yoy from +0.5% yoy in January, driven by lower food prices and tourism-related services prices partly driven by an earlier-than-usual Lunar New Year holiday. Goldman estimates suggest the earlier holiday (January 29 vs. February 10 in 2024) reduced year-over-year headline CPI inflation by 0.7% in February. In month-on-month terms, headline CPI inflation fell to -3.5% (annualized, seasonally adjusted) in February (vs. -1.7% mom s.a. annualized in January).
Even when adjusted for the effect of an earlier-than-usual Lunar New Year holiday, consumer inflation slowed to among the weakest levels in months, according to a Goldman report (available to pro subscribers in the usual place). A decline in services prices, combined with a rare negative reading for core inflation, were among symptoms of sluggish consumption.
More shocking was that China’s core CPI, which excludes volatile items such as food and energy, decreased for the first time since 2021 with a drop of 0.1%, and only the second time the gauge has contracted over more than 15 years. Factory deflation extended into a 29th month.
“China’s economy still faces deflationary pressure,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. “Domestic demand remains weak.”
