Consumer prices fall 0.1% in March; producer deflation deepens for 29th consecutive month amid trade war pressures
China’s consumer prices declined for the second straight month in March, while factory-gate deflation deepened further, highlighting persistent domestic economic fragility and growing strain from intensifying trade tensions with the United States.
The Consumer Price Index (CPI) fell 0.1% year-on-year in March, following a 0.7% decline in February, according to data released Thursday by the National Bureau of Statistics (NBS). The fall missed economists’ expectations for a flat reading, underscoring subdued consumer demand despite recent policy efforts to stimulate spending.
Producer prices extended their relentless decline, falling 2.5% in March from a year earlier—marking the 29th consecutive monthly drop and the steepest contraction since November 2024. Analysts had forecast a 2.3% drop.
Core inflation, which excludes volatile food and energy prices, rose 0.5%, rebounding from a 0.1% contraction in February. While a positive sign, the figure remains below January’s 0.6% growth and reflects the slow pace of domestic recovery.
NBS statistician Dong Lijuan attributed the monthly CPI dip (down 0.4% from February) to seasonal factors such as lower food and travel prices and declining international oil prices. Food prices fell 1.4% from a year earlier, with vegetables, beef, and eggs registering the sharpest declines. Pork prices, however, climbed 6.7%.
“Core CPI’s rebound suggests some positive effects from policy support, but headline inflation remains weak,” Dong said.
Export pain amid tariff escalation
The downbeat inflation data comes as Chinese exporters face renewed pressure from the US, where President Donald Trump this week raised tariffs on Chinese imports to 125%, up from 104%. The move was met with an 84% retaliatory tariff from Beijing, and economists warn the trade war’s escalation will further weigh on China’s industrial output and global competitiveness.
“Chinese exporters are essentially competing for a smaller global market,” said Tianchen Xu, senior economist at the Economist Intelligence Unit. He expects the gap between consumer and producer prices to widen further due to trade disruptions and weaker external demand.
Producer prices are particularly vulnerable to the twin forces of declining raw material costs and waning overseas orders. Factory-gate prices fell month-on-month by 0.4% in March, driven by lower prices in petroleum, coal, and metals. Analysts at the NBS also noted seasonal weakness in energy demand post-winter and continued price softness in export-oriented industries.
Yuan near historic lows, markets rally
Following the data release, the onshore yuan hovered near its weakest level since 2007, trading at 7.3469 per US dollar. The offshore yuan weakened to 7.3611, reflecting growing capital concerns and a cautious outlook for Chinese growth.
Despite the deflationary signals, equity markets rallied on Thursday amid broader optimism following Trump’s decision to pause new tariffs on most US trade partners for 90 days. Mainland China’s CSI 300 index rose 1.6%, while Hong Kong’s Hang Seng surged 3.9%.
Stimulus expected within days
Economists now widely expect Beijing to roll out additional stimulus measures, particularly aimed at lifting domestic consumption to counteract trade headwinds and price weakness.
“This is a potential inflection point driven by policy stimulus, particularly initiatives to boost consumption,” said Bruce Pang, adjunct associate professor at the Chinese University of Hong Kong. He noted that measures to curb aggressive discounting and expand household purchasing power are likely to gradually lift the CPI.
The government has already announced a substantial expansion of its consumer trade-in subsidy program—doubling it from 150 billion yuan to 300 billion yuan (approximately US$41.5bn) for 2025. The subsidies, covering 15–20% of the purchase price, apply to select mid-range consumer electronics and home appliances.
Strategic shift toward domestic demand
Premier Li Qiang’s March government work report named boosting consumption as China’s top economic priority—a rare move not seen in over a decade. According to Morgan Stanley strategist Laura Wang, the report mentioned the term “consumption” 27 times, signalling a strategic shift away from export dependence.
However, analysts remain cautious. Julian Evans-Pritchard of Capital Economics warned that the shift may not be sufficient to offset weakening exports.
“While policymakers have signalled a willingness to do more to support domestic demand, a lot of fiscal spending is still being devoted to expanding the supply side of the economy,” he wrote. “Overcapacity looks set to worsen, exacerbating downward pressure on prices.”
Shen Danyang, head of the State Council’s Government Work Report drafting group, acknowledged the risks from external demand shocks. “China must focus more on domestic demand,” he said in March, citing the need for stability amid global uncertainty.
Australia and regional ripple effects
The intensifying trade spat has also affected Australia, given its deep trade ties with China. The Australian dollar fell on Thursday, retreating from gains made earlier in the week. Markets now expect up to 100 basis points in rate cuts from the Reserve Bank of Australia this year, beginning in May.
Meanwhile, China has continued diversifying its international trade relationships, including recent talks with EU trade chief Maros Sefcovic to deepen industrial and investment cooperation.
