China’s core CPI, which excludes volatile items such as food and energy, rebounded to 0.5% in March from minus 0.1% in the previous month. Factory deflation persisted for a 30th month, with the producer-price index recording a faster drop of 2.5% compared to 2.2% in February
The urgency to reflate the economy is only increasing while the trade conflict with the US ratchets up. Beijing has laid out plans to pump up fiscal stimulus and made boosting domestic consumption a priority this year.Dong Lijuan, chief statistician at the NBS, said warmer weather led to a drop in food prices that drove down monthly inflation, according to a statement accompanying the data release. She also pointed to a decline in the cost of oil and said fewer tourists after a long holiday depressed travel prices.
“The policy effects of boosting consumer demand are gradually emerging,” Dong said.
While an earlier-than-usual Chinese New Year holiday helped lift prices at the start of 2025, deflationary risks have since intensified as tensions between the US and China spiraled into a tit-for-tat cycle of tariff increases. Prices could come under pressure to weaken further should exporters redirect some goods to the domestic market or if other countries facing higher US tariffs divert their products to China.
Investors in the equity market largely looked past the outlook for inflation, focusing on the potential for more stimulus support from Beijing in the face of the worsening trade tensions. A key gauge of Hong Kong-listed Chinese shares gained as much as 3% in early Thursday trading, while the onshore benchmark CSI 300 Index added 1.7%.
President Donald Trump is raising duties on China to 125%, a decision taken on Wednesday after Beijing announced plans to retaliate with an 84% tariff on all imports from the US. The Trump administration has taken particular aim at China over its trade practices and its combative approach to the president’s tariff plans.
Trump’s blitz could put as much as 3% of China’s economic growth at risk, Blomberg Economics estimates. Premier Li Qiang has said Beijing has ample policy tools to “fully offset” external shocks.
China has also vowed to boost domestic consumption as tariffs threaten exports, which contributed to nearly a third of the country’s economic expansion in 2024. The country is on track for the longest streak of economy-wide price declines since the 1960s as a result of weak spending, while the property crash has yet to bottom out.
