China’s consumer prices contracted for a second straight month, while producer price deflation got further entrenched, as Chinese exporters brace for more pain amid an escalating trade war with the U.S.
Consumer price index slid 0.1% year on year in March, remaining in deflationary territory after having contracted 0.7% in February, according to data released by the National Statistics Bureau Thursday.
Economists polled by Reuters had expected a flat reading compared to the same period last year.
Producer prices fell for the 29th straight month, dropping 2.5% in March from a year earlier and marking the largest contraction since November 2024.
The Reuters poll had expected a 2.3% decline.
Core inflation, which strips out volatile food and fuel prices, rose 0.5%, rebounding from a drop of 0.1% in February, though still lower than the 0.6% growth in January.
“We are more likely to see a divergence between consumer prices and producer prices,” said Tianchen Xu, senior economist at Economist Intelligence Unit, adding that core consumer prices have shown signs of picking up while producer prices are set to deteriorate given trade disruption.
“Chinese exporters are essentially competing for a smaller global market,” he added.
U.S. President Donald Trump ratcheted up tariffs on Chinese imports to 125% overnight, up from 104%. Hours earlier, China had retaliated by hitting the U.S. with an 84% tariff on Wednesday.
The data signal a “potential inflection point driven by policy stimulus measures, particularly initiatives aimed at boosting consumption,” said Bruce Pang, adjunct associate professor at Chinese University of Hong Kong.
“With recent policy commitments to curb aggressive price-cutting and additional strategies to encourage household spending, the CPI is anticipated to exhibit further signs of a gradual recovery in the coming months,” Pang said.
Meanwhile, the deflationary pressure in producer prices is likely to persist, given the uncertainties surrounding oil prices and external demand amid ongoing trade tensions, Pang said.
Following the data release, the onshore yuan was hovering near multi-decade lows at 7.3469 per dollar, after hitting its weakest level since 2007 earlier in the session. The offshore yuan weakened 0.23% to 7.3611 on the dollar.
Mainland China’s CSI 300 rose 1.6% while Hong Kong’s Hang Seng Index jumped 3.9% amid a broader recovery in Asian markets.
In March, Chinese Premier Li Qiang had delivered an annual report on government work that named boosting consumption as the top task for the year ahead, as the country set an ambitious target of “around 5%” growth.
That’s the first time in a decade that Beijing has given consumption such a high priority, said Laura Wang, chief China equity strategist at Morgan Stanley. She added that the government work report cited “consumption” 27 times — the most mentions in a decade.
Chinese policymakers have increasingly acknowledged the need to counter deflationary pressure at home.
In a bid to spur domestic consumption, Chinese policymakers in March doubled subsidies for a consumer trade-in program to 300 billion yuan ($41.47 billion) this year. The subsidies will go toward around 15% to 20% of the purchase price for select products, including mid-range smartphones and home appliances.
That’s an expansion from last year’s 150 billion yuan program, announced in the summer, for a narrower range of products.
China must focus more on domestic demand given the possibility of “new shocks” to overseas demand, Shen Danyang, head of the drafting group of the Government Work Report and director of the State Council Research Office, told reporters in March in Mandarin, translated by CNBC.
Chinese officials had said meeting the growth target would require “very arduous work,” according to a CNBC translation of their statement in Chinese. The situation has been further complicated by heightened trade tensions between Beijing and Washington.
“While policymakers have signaled a willingness to do more to support domestic demand, a lot of fiscal spending is still being devoted to expanding the supply side of the economy,” Julian Evans-Pritchard, head of China Economics at Capital Economics said in a note.
“It seems unlikely that consumption support will be sufficient to fully offset weaker exports. As such, overcapacity looks set to worsen, exacerbating downward pressure on prices,” said Evans-Pritchard.
— CNBC’s Evelyn Cheng contributed to this report.
