China's Inflation Hits Three-Year High
China’s consumer inflation hit a three-year high in February, with the CPI rising 1.3% year-on-year—exceeding expectations—while the core CPI climbed 1.8%. Producer price deflation is also easing, suggesting a reawakening of domestic demand.
The 1.3% CPI increase marks the highest level since January 2023, driven primarily by Lunar New Year spending. Food prices saw the sharpest rise since October 2024, with fresh vegetables, beef, lamb, and fresh fruits all increasing. Service prices also jumped, especially for airfares, car rentals, travel agency fees, and hotels. Excluding food and energy, core inflation hit 1.8%, the highest since March 2019. This indicates strengthening domestic demand after removing short-term factors. The jump in core inflation was also partially attributed to retailer mark-ups from the consumer goods trade-in scheme. Factory gate prices are still falling, but the decline is easing. The Producer Price Index (PPI) fell 0.9% year-on-year, an improvement from January's 1.4% drop. Rising energy and non-ferrous metal prices, particularly gold, contributed to the moderation. Looking ahead, analysts suggest that tensions in the Middle East and high oil prices could further lift China's inflation. However, overcapacity issues may limit any sustained rebound. China has set its 2026 growth target to a range of 4.5%–5%.
