• China's consumer price index (CPI) fell 0.7% in February, marking the sharpest decline in 13 months.
• Producer price deflation persists with a yearly drop of 2.2%, indicating ongoing economic challenges.
• Beijing aims to boost consumption while acknowledging its economic growth target remains unchanged at around 5% for 2025.
• Weak consumer spending is attributed to concerns over job stability and income uncertainty.

In February, China's consumer price index (CPI) experienced a notable decline of 0.7%, the sharpest drop in 13 months, as announced by the National Bureau of Statistics (NBS). This contraction contrasts with a 0.5% increase recorded in January and fell short of expectations set by economists who had predicted a 0.5% decline, according to a poll by Reuters. The latest CPI figures reflect ongoing deflationary pressures that are evidenced by a drop in consumer spending amid job and income concerns.

The producer price index (PPI) likewise recorded a 2.2% decline year-on-year, though this was an improvement from January’s 2.3% decline; however, it still did not meet the forecasted 2.1% decline, highlighting persistent inflationary pressures on producers according to SCMP.

Economic analysts, including Zhiwei Zhang from Pinpoint Asset Management, argue that despite improved sentiment in technology sectors, the general domestic demand remains weak. He stated, "China's economy still faces deflationary pressure," and has urged for more proactive fiscal policies to alleviate the ongoing challenges, specifically within the property sector that has been struggling for some time. Measures proposed include interest rate cuts and a reduction in reserve requirement ratios.

Moreover, China’s government, amidst escalating trade tensions with the United States, reduced its annual inflation target from around 3% to 2% while maintaining an economic growth target of approximately 5% for 2025. The government has launched initiatives such as doubling the subsidies for consumer goods, including electric vehicles and home appliances, aiming to rejuvenate consumer spending. However, more comprehensive reforms to address the welfare system are still required to enhance consumption confidence among households explained Channel News Asia.

Overall, the data from February indicate a concerning trend for China's economy, which continues to contend with notable deflationary pressures amid an uncertain economic landscape.