China’s deflationary pressures deepened in March, with both consumer and producer prices falling for a second consecutive month amid escalating trade tensions with the U.S.
Consumer prices declined 0.1% year-on-year, following a 0.7% drop in February, missing expectations (+0.1%). Meanwhile, producer prices fell 2.5% - the sharpest drop since November 2024 - marking 29 straight months of contraction.
Economists point to weakening global demand and rising tariffs as key factors. U.S. tariffs on Chinese goods have jumped to 125%, while China retaliated with an 84% levy, straining trade and pushing exporters into a shrinking global market.
Core inflation, which excludes food and fuel, rose 0.5%, showing slight improvement but still lagging January’s 0.6% growth.
Despite signs of recovery in retail sales and factory activity, high unemployment and weak external demand are weighing on China’s economy. Beijing aims to maintain around 5% GDP growth but faces significant challenges.
In response, policymakers are ramping up stimulus, including relaxed lending rules and expanded consumer subsidies. A trade-in program was doubled to 300 billion yuan ($41.5 billion), covering items like smartphones and appliances.
Still, analysts warn that stimulus focused on boosting domestic demand may not fully offset the drag from exports. Overcapacity risks and falling prices could persist, especially in the manufacturing sector.
China’s leadership has made boosting consumption a top priority for the year, but with global headwinds mounting, meeting growth targets will require aggressive and sustained policy action.