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Summary
China’s inflation ticked up in February after its flat reading in January, but we can’t infer that its campaign against ‘involution’—excessive rivalry—is working. Perhaps it needs a big dose of fiscal stimulus to overcome its price-softening woes.
China is just managing to keep retail deflation at bay. Official data for February released on Monday showed that its consumer price index rose 1.3% from a year earlier. In January, it had recorded a rise of just 0.2%. The February reading marked a near three-year high.
For this, it has an extended Lunar New Year break to thank, as this is a season that tends to see better spending.
Of course, this also raises the question of whether deflationary pressures will rise again once that effect wears off. Note that China’s producer price index has been negative for a prolonged period. Last month, it posted a 0.9% year-on-year drop.
All this indicates that domestic demand remains painfully weak, even as Beijing struggles to tackle what it calls ‘involution,’ its term for intense competition that doesn’t result in progress, and tries to reduce its dependence on exports for economic expansion.
Its GDP target for 2026 is just 4.5-5%, the lowest since 1991. Even if the Iran war’s oil shock helps it sustain positive inflation readings, its problem of overcapacity and under-consumption is likely to persist. A robust retail-spending stimulus may be Beijing’s best bet. Its 2026 fiscal deficit target, at 4% of GDP, isn’t too large.
English (US) ·