China's consumer inflation accelerated in February, marking the strongest annual increase in over three years, driven by robust spending during the extended Lunar New Year holiday. Data released by the National Bureau of Statistics showed the Consumer Price Index (CPI) rose 1.3% year-on-year, surpassing economists' expectations and following a modest 0.2% rise in January. This February reading represents the fastest annual inflation pace since January 2023.
On a monthly basis, consumer prices jumped 1%, significantly exceeding the forecasted 0.5% increase. Core inflation, which excludes volatile food and energy prices, climbed 1.8% from a year earlier, matching the strongest pace seen since March 2019. The surge was largely fueled by service prices, which rose 1.1% year-on-year, contributing 0.54 percentage points to the headline figure. Increased demand for travel, dining, pet care, vehicle maintenance, and movie tickets during the holiday period was a key driver.
This year's Lunar New Year celebration, running from February 15 to 23, was the longest on record. To smooth out holiday effects, officials often combine January and February data, which showed a 0.8% CPI increase for the first two months of 2026.
Meanwhile, the Producer Price Index (PPI), which measures factory-gate prices, showed a moderation in deflationary pressures. The PPI fell 0.9% year-on-year in February, a slower decline than the 1.2% drop economists had anticipated and the mildest pace of deflation in over a year. This improvement was supported by rising commodity prices, with silver refining prices up 16.9%, gold refining up 8.4%, and oil and gas extraction prices climbing 5.1%. On a month-to-month basis, the PPI rose 0.4%, marking the fifth consecutive monthly increase.
Despite the temporary demand boost, policymakers remain cautious about underlying domestic consumption. Authorities have maintained an annual inflation target of around 2% for 2026, the lowest goal in more than two decades, reflecting ongoing concerns about weak demand. Consumer prices were flat overall in 2025. The government has also lowered its official GDP growth target to a range of 4.5% to 5%, the least ambitious goal since the early 1990s.
To stimulate consumption, the government has allocated 250 billion yuan (approx. $36.2 billion) for consumer trade-in subsidies in this year's fiscal budget, down from 300 billion yuan in 2025, and created a 100 billion yuan fund to support private investment and spending.
Geopolitical tensions, particularly the conflict in the Middle East which pushed oil above $100 a barrel, have added pressure to commodity prices, influencing gold jewellery and gasoline costs in China. However, analysts note China may be less sensitive to oil shocks due to its massive strategic crude reserves, estimated at 1.2 billion barrels, and its rapid shift toward electric vehicles and renewable energy.
