China's 'Fear of D' Becomes Reality... CPI Goes Negative After 13 Months Despite 'Domestic Consumption Promotion'

China's February Consumer Price Index Falls 0.7%

Corporate Profitability Worsens Due to Tariffs and Overproduction

China's Consumer Price Index (CPI) fell 0.7% year-on-year in February, recording a negative figure for the first time in 13 months. Despite the Chinese government's successive policies to stimulate domestic demand, concerns about deflation are becoming a reality.

According to China's National Bureau of Statistics on the 9th, the February CPI growth rate fell 0.7% year-on-year, worse than January's (+0.5% month-on-month). This is a larger drop than the expert forecast of -0.4% compiled by Bloomberg.

China's year-on-year CPI growth rate recorded 0.6% in August last year, then slowed to 0.4% in September, 0.3% in October, 0.2% in November, and 0.1% in December, but jumped to 0.5% in January this year as authorities announced successive domestic demand stimulus policies.

The February Producer Price Index (PPI) also fell 2.2% year-on-year, continuing its downward trend for the 29th consecutive month. The PPI's decline had narrowed to -0.8% in June-July last year, but showed significant drops with -1.8% in August and -2.3% in January.

Analysts suggest that the Chinese economy is facing deflationary pressure (price decline amid economic recession). Falling prices can suppress household consumption, worsen corporate profitability, reduce investment, and ultimately lead to wage cuts and employment reductions.

Reuters reported, "Global tariff threats and China's overproduction are forcing Chinese exporters into worldwide price competition, compelling many companies to reduce product prices and wages," forecasting that "deflationary pressure is expected for China, the world's second-largest economy."

However, the base effect due to the timing difference of the Spring Festival (Chinese Lunar New Year), when consumption surges, seems to have played a partial role. Unlike last year when the Spring Festival was concentrated in February, this year it was earlier, from January 28 to February 4.

Dong Lijun, chief statistician at China's National Bureau of Statistics, explained, "This is the result of statistics being collected after the Spring Festival consumption peak and the impact of some international commodity price fluctuations," adding that "prices are showing stability in some sectors, and as the PPI decline is narrowing, the price recovery trend will continue."

Reporter Lee Hye-in hey@hankyung.com