China Prices Rise on Holiday Demand but Factory Depression Lingers
By Reuters | 08 Mar, 2026

Flight tickets and gold prices soared in large part due to US Iran strikes but the imbalance between production and demand kept most goods prices in deflationary mode.

 China's consumer inflation accelerated to the highest in more than three years due to the effects of the Lunar New Year holiday, while producer deflation persisted as weak demand remained a drag on an economy facing stiff external challenges.

Policymakers have been trying to boost consumption over the past two years, but analysts say more needs to be done to address the supply-demand imbalance.

The consumer price index (CPI) rose 1.3% year-on-year for the fifth month of gains and outpaced the 0.2% increase in January, data from the National Bureau of Statistics (NBS) showed on Monday. The rate was the highest in 37 months, and beat an expected 0.8% rise in a Reuters poll. 

A nine-day Lunar New Year holiday boosted domestic travel and consumer spending, lifting the headline CPI as services prices surged. 

Flight ticket prices rose 29.1% year-on-year, while gold jewellery prices soared 76.6%, according to NBS data. 

Analysts said it was uncertain whether the recovery in consumer prices could last.

"Tensions in the Middle East will push inflation higher for as long as global energy prices remain elevated," said Zichun Huang, ⁠China economist at Capital Economics, referring to a rapid jump in oil prices in the wake of the U.S. and Israeli strikes against Iran.

However, China's five-year plan unveiled at a key parliament meeting last week disappointed "in terms of boosting domestic demand," Huang said, meaning "any inflationary pickup will unwind once tensions ease."

Core CPI, which excludes volatile prices of food and fuel, rose 1.8% year-on-year, compared with the 0.8% uptick in January. 

On a monthly basis, CPI increased 1% versus a 0.2% rise in January and an expected 0.5% gain. 

OIL SHOCK REARS HEAD AS DEFLATION PERSISTS

The economy has been beset by a years-long property market slump and external trade uncertainties, with protectionist U.S. policies posing fresh challenges to policymakers. 

Beijing has vowed to keep cracking down on excessive competition and ensure smoother exit of inefficient production capacity in order to stabilise prices.

However, the deflationary impulse across the economy continues to exert margin pressure on the manufacturing sector, while underpinning expectations of sustained price falls in a further blow to confidence.

There was a modicum of relief in the latest data, however. The producer price index (PPI) recorded the smallest year-on-year drop since July 2024, having fallen 0.9% in February. It declined 1.4% the previous month, and the Reuters poll had forecast a 1.2% drop. 

In a statement, NBS statistician Dong Lijuan attributed the milder producer deflation to factors including stronger prices in advanced and emerging sectors as well as capacity management in key industrial sectors.

PPI rose 0.4% in February from January, driven partly by rising crude oil prices globally and demand linked to growth in computing power, Dong said. 

Beijing is aiming for GDP growth of between 4.5% and 5% for the year, slower than the previous year's "around 5%", signalling willingness to accommodate reforms that could help the economy reduce its reliance on external demand.

The government's CPI target for 2026 remained unchanged at "around 2%", a goal that China's state planner said was "conducive to guiding public expectations and boosting market confidence while also leaving room for macro regulation and further reforms".

China has not achieved its annual CPI goals for years.

The government has pledged to implement "more proactive" macroeconomic policies in 2026. The central bank in January cut sector-specific interest rates and earmarked more cheap loans to small and medium-sized tech and private firms.

"Unless the oil price shock is notably stronger and longer than expected, it's not expected that inflation will inhibit PBOC easing this year," Lynn Song, chief economist for Greater China at ING, said.

There is room for a rate cut in the second quarter as the economy likely got off to a soft start in 2026, Song added, though policymakers can choose a more cautious route and delay the easing.

(Reporting by Yukun Zhang and Ryan WooEditing by Shri Navaratnam)