BEIJING, CHINA – NOVEMBER 6: Women wearing Qing dynasty style costumes take photos inside the Forbidden City on November 6, 2025, in Beijing, China.
Cheng Xin | News Getty Images
China’s consumer inflation recorded its biggest rise in more than three years as extended holidays supported spending while ex-factory price deflation eased.
The consumer price index rose 1.3% in February from a year earlier, data from China’s National Bureau of Statistics showed on Monday, beating economists’ forecasts of a 0.8% rise according to a Reuters poll. This increase, after a 0.2% rise in January, marked the strongest rebound since January 2023, according to LSEG data.
On a monthly basis, prices gained 1% in February, above the expectations of economists who were counting on an increase of 0.5%.
The core CPI, which excludes volatile food and energy prices, climbed 1.8% last month from a year earlier, matching the pace last seen in March 2019, according to official data compiled by Wind Information.
“The price rise in the service sector during the Chinese New Year is stronger than the market expected. [and] It is unclear at this stage whether this effect will persist beyond the holidays,” Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, said Monday.
Prices for services rose 1.1% last month year-on-year, contributing 0.54 percentage points to the overall CPI, the official data ” showed, driven by demand for travel, pet care, vehicle maintenance, movies and dining services during the holidays.
This year’s Lunar New Year holiday ran from February 15 to 23 – the longest on record – compared to eight days spanning late January to early February last year.
China’s producer price index fell 0.9% from last year, better than economists had expected for a 1.2% drop, marking the slowest pace of deflation in more than a year, as rising metal and raw material costs helped set a temporary floor below ex-factory prices.
At an economic policy meeting last week, China kept its annual consumer inflation target stable. “around 2%” for 2026. First set for 2025, it is the lowest level in more than two decades as Chinese policymakers sought to support domestic demand and curb aggressive price wars ravaging many sectors.
The inflation target is more of a ceiling than a goal to achieve. In 2025, consumer prices remained broadly stable, while core inflation increased by 0.7% as consumer confidence remained weak.
Beijing too lowered its GDP growth target this year, in a range of 4.5% to 5%, the least ambitious target on record since the early 1990s, as officials acknowledge lingering deflationary pressures and heightened geopolitical uncertainty.
To support domestic spending, Chinese officials allocated 250 billion yuan ($36.2 billion) in this year’s fiscal budget to subsidize a consumer recovery program – up from 300 billion yuan in 2025 – as well as a 100 billion yuan government fund to support private investment and consumer spending.
“The rhythm [of these stimulus measures] will remain progressive,” said Larry Hu, chief China economist at Macquarie, noting that while policymakers view weak consumption as a structural problem to be addressed, the need for “aggressive consumption stimulus is weak,” with exports and manufacturing seen as continuing to fuel growth.
“The main driving force is exports,” Hu said in a note last Thursday. “If exports remain strong, policymakers may continue to tolerate weak domestic consumption. Conversely, if exports weaken, they will step up domestic stimulus measures to defend the GDP target.”
Geopolitical tensions, exacerbated by the ongoing conflict in the Middle East, pushed prices of gold jewelry and gasoline in China up 6.2% and 3.1%, respectively, in February. Ex-factory prices for silver and gold refining jumped 16.9% and 8.4%, while prices for oil and gas extraction climbed 5.1%.
The war in the Middle East, which has shown few signs of easing, could continue to push up producer prices in China at least until March, Zhang said, warning that prolonged conflict risks tipping the global economy into stagflation.
China may need to implement a more proactive fiscal policy than its budget, unveiled last week, if tensions in the Middle East fail to defuse in the second quarter, Zhang said.