China’s Factory Deflation Eases More Than Forecast at Year Start

q21m2wm2rv4nr6aqkooo[8nm_media_dl_1.png National Bureau of Statistics

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(Bloomberg) — China’s factory deflation eased more than expected in January, as downward pressure on prices moderates thanks to higher commodity costs and a crackdown on excessive competition among companies.

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Producer prices fell 1.4% last month from a year earlier, their smallest decline since July 2024, according to data released by the National Bureau of Statistics on Wednesday. The median forecast of economists surveyed by Bloomberg was for a decrease of 1.5%.

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After dropping for 40 straight months, the improvement in PPI “could be a positive signal for the market if we suddenly see the light at the end of the tunnel of these deflationary pressures on the production side of the economy,” Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA, told Bloomberg Television before the data release.

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The consumer-price index rose just 0.2% in January from a year earlier — a slowdown caused largely by base effects — after a 0.8% rise in December. Core CPI, which excludes volatile items such as food and energy, climbed 0.8%, its lowest level in six months.

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China remains in the grip of deflation that’s eating away at income and profits. The country’s gross domestic product deflator declined for the third straight year in 2025, the longest streak since China transitioned toward a market economy in the late 1970s.

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NBS statistician Dong Lijuan attributed the slower increase in CPI partly to the effect of a high base last year and said fluctuations in global oil prices contributed to a drop in domestic energy costs. The Lunar New Year, which tends to drive up spending by households, is a moving holiday that ran from Jan. 28 to Feb. 4 in 2025 but will fall entirely in February of this year.

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Deflationary pressures have been present since the end of the pandemic, in large part as a consequence of a prolonged slump in housing and weak consumer demand. 

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A glut of production capacity in some industries has also led to oversupply, pushing firms to cut prices to survive. In response, the government has moved to curb cutthroat competition among companies — a campaign dubbed “anti-involution” — to stamp out the price wars that have been eroding corporate earnings in industries from electric vehicles to food delivery.

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Authorities are making some headway in containing deflationary pressure. Major restaurant and beverage chains in China, including KFC and Cotti Coffee, are raising prices on food delivery platforms, retreating from years of discounting after regulators launched a probe into subsidies in the sector. 

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In monthly terms, producer prices have been rising since October, their longest streak since early 2022. That reflects a combination of factors, including the global rally in metals prices, government efforts to curb competition, as well as increased demand in electronics related to artificial intelligence, NBS’s Dong said in a statement.