China Consumer Inflation Reaches Three-Year High as Producer Price Decline Slows

China’s consumer inflation rose sharply in February, recording its biggest increase in more than three years, as holiday spending boosted demand across the country.

Data released by China’s National Bureau of Statistics showed that the Consumer Price Index (CPI) increased by 1.3% in February compared with the same period last year. The figure was higher than economists’ expectations of a 0.8% rise and marked a strong rebound from the 0.2% increase recorded in January.

The rise in consumer prices reflects stronger spending during the Lunar New Year holiday period, which encouraged higher demand for travel, food, entertainment, and services.

Monthly Prices Rise More Than Expected

On a monthly basis, consumer prices increased 1% in February, which was also above economists’ forecasts of 0.5% growth.

Analysts say the extended holiday period played a major role in driving spending and pushing prices higher.

This year’s Lunar New Year holiday lasted from February 15 to February 23, making it the longest holiday period in recent years. The longer break encouraged people to travel, dine out, and spend more on services.

Service Sector Drives Inflation

A significant part of the price increase came from the service sector.

Service prices rose 1.1% compared with a year earlier, supported by strong demand for:

• Travel and tourism services

• Restaurant and dining services

• Movie and entertainment activities

• Vehicle maintenance services

• Pet care services

These sectors saw increased activity during the holiday period, contributing noticeably to the overall inflation rate.

Core Inflation Also Improves

China’s core inflation, which excludes volatile food and energy prices, rose 1.8% in February from a year earlier.

This was the strongest pace recorded since March 2019, suggesting that underlying consumer demand is gradually improving.

However, economists say it is still unclear whether the rise in prices will continue after the holiday spending period ends.

Producer Price Decline Slows

While consumer inflation increased, factory-gate prices continued to fall, although the pace of decline slowed.

China’s Producer Price Index (PPI) dropped 0.9% compared with the previous year. This decline was smaller than economists’ forecast of a 1.2% drop, indicating that pressure on industrial prices may be easing.

The slower decline was partly supported by higher prices for metals, commodities, and energy resources, which helped stabilize manufacturing costs.

China Maintains Inflation Target for 2026

China has kept its annual inflation target at around 2% for 2026, a level that policymakers introduced in 2025.

The relatively low target reflects the government’s cautious approach as it tries to boost domestic demand while avoiding strong inflation pressures.

In 2025, overall consumer prices remained mostly stable, while core inflation rose slightly.

Economic Growth Target Reduced

Chinese policymakers have also set a GDP growth target of 4.5% to 5% for 2026, which is the lowest growth target in decades.

Officials have acknowledged that the country still faces challenges such as weak consumer confidence, deflation risks in some sectors, and global economic uncertainty.

Government Plans Measures to Support Consumption

To encourage consumer spending, the government has introduced several support measures.

These include:

• 250 billion yuan ($36.2 billion) for a consumer trade-in program

• 100 billion yuan investment fund to support private sector growth and domestic consumption

Economists say these measures aim to gradually strengthen consumer demand and stabilize the economy.

Global Factors Could Influence Prices

Rising geopolitical tensions in the Middle East have also affected prices in China.

In February, gold jewelry prices increased by 6.2%, while gasoline prices rose 3.1%. Higher global commodity prices have also pushed up costs in sectors such as oil and gas extraction and metal refining.

Analysts warn that if geopolitical tensions continue, higher energy prices could influence inflation trends in the coming months.