China’s consumer inflation rose to its highest level in five months in January, reflecting mixed consumer spending, producer price deflationary territory, and weak factory activity. The consumer price index (CPI) rose 0.5% year-on-year in January, beating economists’ forecast of just 0.1% in December.

Excluding volatile food and fuel prices, core inflation also rose to 0.6%. Despite this rise in consumer prices, deflationary pressures continue to weigh on the producer price index, which fell 2.3% year-on-year, while factory-gate prices have been falling for 28 consecutive months.

Consumer spending during the Lunar New Year holiday showed mixed results, with per capita spending rising 1.2%, a significant slowdown from the 9.4% increase in 2024. This reflects concerns about job and wage security amid ongoing economic challenges.

US tariffs on Chinese goods are adding further pressure to the Chinese economy, and analysts warn that producer price deflation could persist if domestic demand does not pick up. Policymakers are expected to maintain a growth forecast of around 5% for 2025, but further stimulus measures may be needed as the economy faces ongoing external and internal pressures.