China consumer inflation picks up as holiday boosts spending

China’s consumer inflation accelerated for the first time since August, caused by a burst of household spending around the Lunar New Year holiday even as deflationary pressures persist.The consumer price index rose 0.5% in January from a year earlier, the National Bureau of Statistics said Sunday, compared with a 0.1% gain in the previous month. The median forecast of economists surveyed by Bloomberg was a 0.4% increase.

A temporary spending boom during the eight-day break briefly masked the extent of the deflationary challenge facing the world’s second-biggest economy. The price of services increased 0.9%, accounting for more than 50% of the total rise in CPI, according to the statistics bureau.

Also Read: Trump may announce tariffs on all partner countriesChina’s factory deflation extended into a 28th month with a 2.3% decline, flat with the index’s contraction in December.

China Consumer Inflation Picks Up | Industrial deflation extends into a 28th monthAnalysts at Nomura Holdings Inc. including Sonal Varma and Si Ying Toh estimate that China’s CPI could have been distorted by around 0.4 percentage point last month, as some prices gained when consumers ramped up purchases ahead of the festival that ran from January 28 to February 4 this year.

The Lunar New Year is a moving holiday that fell entirely in February in 2024.

The health of the consumer economy is increasingly in focus for China after it exchanged the first blows in a trade war with the US. An improvement in domestic demand is urgently needed to help offset the effects of higher tariffs on exports imposed this month by the Trump administration.

Top officials led by President Xi Jinping have already pivoted to plans for more government spending and interest-rate cuts. With household wealth under strain from a yearslong property slump, they elevated boosting consumption to the top priority for economic efforts this year, only the second time that’s happened in at least a decade.

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The persistence of deflationary pressures in China is in stark contrast to other major economies. The worry for Beijing is that an entrenched cycle of price decreases would hold back household spending for longer and damage corporate revenues so much that it stifles investment and leads to further salary cuts and layoffs.