Chinese Consumer Prices Rise While Factory Deflation Persists Amid Trade War Concerns

Consumer inflation in China accelerated to its highest rate since August, driven by increased spending ahead of the lunar new year celebrations. The latest data from the Chinese National Bureau of Statistics reveals consumer prices rose 0.5 per cent year-on-year in January, up from 0.text per cent in December.

The timing of the lunar new year celebrations, which fell in January this year compared to February in 2024, contributed significantly to the inflation uptick. The period traditionally sees heightened consumer spending on food and celebratory goods.

The positive consumer price movement comes as global markets brace for potential economic turbulence stemming from escalating trade tensions between the United States and China. The situation has intensified following President Trump’s implementation of new tariffs on Chinese goods, prompting retaliatory measures from Beijing.

Despite rising consumer prices, China’s manufacturing sector continues to struggle with deflation. Producer prices declined 2.3 per cent compared to the previous year, marking the 28th straight month of falls. The figure matched December’s decrease and exceeded economists’ projections of a 2.1 per cent decline.

Economic experts predict continued deflationary pressures throughout 2025 unless Beijing successfully stimulates domestic demand. The Chinese Communist Party’s pledge to boost growth faces additional challenges from US tariffs, which threaten to impact the country’s crucial export sector.

While China maintains its 5 per cent growth target for 2025, the uncertainty surrounding American trade policies poses significant risks to export performance. President Xi has indicated future economic initiatives will prioritise domestic consumption, a strategy economists consider essential for sustaining robust growth. The government is expected to unveil detailed economic policies in March.