China’s Inflation Rate Slows to One-Year Low, Casting Doubt on Recovery
Consumer prices rose 1% in February from a year earlier, far less than expected
HONG KONG—Inflationary pressures in the world’s second-largest economy eased more than expected in February after a post-reopening spike, a sign of the limited boost from the lifting of strict “zero Covid” curbs for domestic demand.
Consumer prices gained 1% in February compared with a year earlier, slower than the 2.1% increase recorded in January, led by a deceleration in food-price increases, China’s National Bureau of Statistics said Thursday. The result also undershot by a wide margin the 1.7% increase anticipated by economists polled by The Wall Street Journal and was the lowest reading since the 0.9% gain recorded in February 2022.
The drop in consumer-price growth was driven by “a pullback in demand after the holiday as well as ample market supply,” said Dong Lijuan, a senior statistician with the statistics bureau.
The modest inflation figure arrived days after lackluster trade figures for the first two months of this year, casting fresh doubt over the strength of China’s economic rebound and raising new questions about whether the scrapping of Covid controls alone would be enough to put growth back on Beijing’s desired trajectory.
On Sunday, Chinese leaders set a growth target for gross domestic product this year at around 5%, a relatively conservative goal after zero-Covid lockdowns and a government-induced property slump restricted growth to 3% in 2022, one of the slowest rates in decades. In addition, Beijing said it aims to cap consumer inflation at 3% this year, a goal unchanged from last year when consumer prices gained 2%.
Economists largely interpreted the GDP target and other fiscal goals as a sign that stimulus isn’t likely to be on the table this year, with leaders instead relying on the lifting of Covid restrictions to do most of the work.
Indeed, Beijing’s abrupt end to its zero-tolerance approach to contain Covid late last year fueled a sharp rebound that could be seen in some economic indicators this year, including manufacturing output and services spending, both of which topped many economists’ expectations.
But many economists question the sustainability of the rebound. Overseas demand for Chinese-made goods is expected to retreat further this year, after stumbling during the first two months of 2023, extending a string of year-over-year declines stretching back to October.
Authorities have displayed little interest in juicing up the growth rate by launching large-ticket stimulus to fund infrastructure projects.
That means spending by Chinese households—who have socked away a sizable amount of cash during the pandemic—will largely determine how fast the economy expands this year. Still, without visible improvements in the labor market, economists expect consumers to remain cautious.
Should China’s post-Covid economic rebound remain lackluster, one silver lining would be that consumer inflation remains far less of a concern in China than in the West.
Some economists believe consumer prices will likely rebound in the coming months as more people take advantage of their new postpandemic freedoms, though inflation is unlikely to reach the levels seen in other economies after they reopened, according to Capital Economics.
February’s inflation data showed demand for services cooling quickly after January’s weeklong Lunar New Year holiday.
Food prices rose 2.6% from a year earlier in February, slowing from January’s 6.2% growth. Prices of pork, a Chinese staple that has a large weighting in the country’s consumer-price index, decelerated to 3.9% growth, down sharply from the 11.8% increase in January.
Stripping out food and energy prices, consumer prices rose 0.6% from a year earlier in February, compared with January’s 1.0% increase.
Meanwhile, deflationary pressures on factory goods produced in China accelerated as demand from Western economies softened further.
The producer-price index dropped deeper into deflationary territory in February by falling 1.4% from a year earlier, compared with January’s 0.8% decline, the statistics bureau said. That was lower than the 1.2% decline expected by surveyed economists.
The bigger uncertainty around China’s inflation outlook is its impact overseas rather than at home.
China will likely consume more energy as its economy recovers, putting upward pressure on prices of oil and other commodities. If that scenario comes to pass, it might increase pressure on global central banks, including the U.S. Federal Reserve, to keep interest rates higher for longer to battle inflation.
On Tuesday, the U.S. Energy Information Administration upgraded its forecast for global liquid fuel consumption by 1.5 million barrels a day this year compared with 2022, with China accounting for about half of that increase.