BEIJING (Reuters)

China’s consumer inflation accelerated to its fastest pace in five months in January, while producer price deflation persisted, indicating mixed consumer spending and weak factory activity.

Analysts forecast that deflationary pressures will likely continue in China this year unless policymakers can revive sluggish domestic demand. Tariffs imposed by U.S. President Donald Trump on Chinese goods also pressure Beijing to stimulate growth in the world’s second-largest economy.

The consumer price index (CPI) rose 0.5% last month compared to a year earlier, a significant increase from December’s 0.1% gain. This figure surpassed the 0.4% rise estimated in a Reuters poll of economists.

Core inflation, excluding the volatile prices of food and fuel, increased to 0.6% in January from 0.4% the previous month.

Despite a gradual rise in consumer prices expected, producer prices are predicted to remain negative in the near term due to ongoing overcapacity in industrial goods. Xu Tianchen, a senior economist at the Economist Intelligence Unit, noted, “If measured by the GDP deflator, it will still take a few quarters to get out of deflation.”

Seasonal factors, including the Lunar New Year celebrations that began in January this year versus February last year, influenced these numbers. Typically, prices spike as consumers stockpile food and goods for family gatherings during this holiday.

Notably, airplane ticket prices rose by 8.9% year-on-year, tourism inflation stood at 7.0%, and movie and performance ticket prices surged by 11.0%.

Despite an increase in movie theater visits and spending on shopping, catering, and domestic travel, per capita spending during the holidays saw a minimal increase of only 1.2% from the previous year, a stark contrast to the 9.4% rise in 2024, according to analysts at ANZ.

In January, the CPI edged up 0.7% from the previous month, falling short of the anticipated 0.8% rise and matched December’s unchanged outcome.

In 2024, CPI increased by 0.2%, aligning with the previous year’s pace but significantly below the official target of around 3%, suggesting inflation has missed annual goals for the 13th consecutive year.

China’s provinces have set their 2025 economic growth targets with averages below 3%, indicating that policymakers expect changes and pressures on price levels. Bruce Pang, adjunct associate professor at CUHK Business School, noted this trend.

China’s manufacturing unexpectedly contracted in January, and with weakened services activity, there are ongoing calls for further stimulus. While Beijing is expected to maintain its economic growth forecast of around 5% this year, fresh U.S. tariffs will likely affect exports, which were one of the few positive parts of the economy last year.

The producer price index (PPI) declined by 2.3% year-on-year in January, matching December’s drop, and exceeding the forecasted 2.1% decrease. It has been 28 continuous months of deflation for factory-gate prices.

The government is not anticipated to alter monetary or fiscal policies before the annual parliament session in March, according to Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. Zhang remarked, “For policymakers, external uncertainty seems to rank higher than domestic economic challenges at this stage.”