A June report from Bain & Company said Chinese consumers are experiencing a “luxury shame” similar to what happened in the United States during the 2008-2009 financial crisis.
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China’s consumer inflation rate was lower than expected in January, but producer price deflation continued, indicating continued deflationary pressures in the absence of stronger stimulus.
China’s National Bureau of Statistics announced on Wednesday that the consumer price index rose 0.2% in January from a year earlier, lower than the 0.4% rise expected by economists polled by Reuters. This is the highest level in about three years, following a 0.8% increase in December.
The index rose 0.2% from the previous month, lower than the 0.3% rise expected by economists.
Core CPI, which excludes volatile food and energy prices, rose 0.8% year-on-year, slowing the rate of increase from 1.2% in December.
China’s producer price index fell 1.4% from a year earlier, according to official data, beating economists’ expectations for a 1.5% decline and slowing from a 1.9% decline in December. Producer inflation rose 0.4% month-on-month, improving for the fourth consecutive month, partly due to the rise in global gold prices in recent months.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said the data was skewed by the timing of the Lunar New Year, which lasted in January last year and fell in mid-February this year. “This discrepancy makes interpretation of the macro data difficult,” Zhang said.
Xavier Wong, a market analyst at e-Toro, echoed this view of holiday-related distortions, noting, “While holiday-related price increases were stronger in January last year, that is not the case this January.”
“It is much more reasonable to read January and February together than to analyze January and February separately,” Wong pointed out.
Factory-gate price deflation has been going on for more than three years, weighing on profitability for manufacturers who have weathered lukewarm consumer confidence and production disruptions caused by U.S. trade policy for much of last year.
The world’s second-largest economy grew 5% last year, in line with Beijing’s official target, thanks to strong growth in exports to markets outside the United States.
China has struggled to eliminate deflationary pressures since the end of the pandemic, weighed down by a prolonged real estate downturn and an uncertain job market outlook. Authorities are trying to curb cross-industry price competition, where overcapacity is fueling a glut of goods and forcing companies to cut prices.
Chetan Iyer, chief Asia economist at Morgan Stanley, said in a note on Wednesday that while policymakers want investment to be the main driver of growth, they are considering stimulus measures to support consumption as a “one-off stimulus” that would increase the debt burden.
Due to deflationary pressures and a real estate recession, China’s fiscal revenue-to-GDP ratio has declined by 4.8 percentage points to 17.2% since 2021. Meanwhile, public debt as a percentage of GDP has expanded by 40 percentage points since 2019, reaching 116% in 2025, according to Wall Street Bank.
This is still lower than the US federal debt of 124% of GDP in 2025, according to official data.
Policymakers are expected to announce this year’s economic goals in Congress next month.
In its policy report on Tuesday, the People’s Bank of China reiterated its determination to implement “appropriate accommodative” monetary policy to support the economy and lead to a “reasonable recovery” in prices.
