China’s consumer inflation hit a three-year high as output deflation eased

China’s consumer inflation recorded its biggest jump in more than three years as an extended holiday boosted spending but deflation in factory-gate prices moderated.

The consumer price index rose 1.3% in February from a year earlier, China’s National Bureau of Statistics data showed on Monday, beating economists’ forecasts for a 0.8% increase in a Reuters poll. The increase followed 0.2% growth in January, marking the strongest rebound since January 2023, according to LSEG data.

Prices rose 1% for the month, beating economists’ expectations for a 0.5% rise.

China’s producer price index fell 0.9% from a year earlier, better than economists’ expectations of a 1.2% drop, official data showed, moderated from a 1.4% drop in January.

At a top economic policy-setting meeting last week, Beijing kept its annual consumer inflation target steady at “around 2%” for 2026. The first set in 2025, the lowest level in more than two decades as Chinese policymakers seek to boost domestic demand and rein in aggressive price wars.

An inflation target acts more as a ceiling than a target to be realized. In 2025, consumer prices were flat overall, but core inflation excluding food and energy prices rose 0.7% as consumer confidence remained soft.

Beijing cut its GDP growth target to 5% this year from 4.5%, the least ambitious target on record since the early 1990s, as officials acknowledged persistent deflationary pressures and heightened geopolitical uncertainty.

To boost domestic spending, Chinese officials earmarked 250 billion yuan ($36.2 billion) in this year’s fiscal budget to subsidize the consumer trade-in program — down from 300 billion yuan in 2025 — along with 100 billion yuan in government funding to support private investment and consumer spending.

“The pace of these stimulus measures will continue to increase,” said Larry Hu, Macquarie’s chief China economist, adding that policymakers see weak consumption as a structural problem, with exports and manufacturing needing “less aggressive consumption stimulus” to sustain growth.

“The main swing factor is exports,” Hu said in a note last Thursday. “If exports remain strong, policymakers may continue to tolerate weak domestic consumption. Conversely, if exports falter, they will increase domestic stimulus to defend the GDP target.”

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