Deflation risks see most Chinese provinces shy away from ‘legacy’ 3% CPI target

China is facing a rocky road to reflation after its actual CPI growth stayed far below annual control targets, and regional governments appear less hopeful that consumer demand will markedly rise this year

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China’s consumer price index target has increasingly become an indicator of demand in the country. Photo: Xinhua

Published: 6:30pm, 21 Jan 2025Updated: 6:39pm, 21 Jan 2025

As deflationary pressures persist across China amid weak domestic demand and knock-on effects from industrial overcapacity, Beijing appears hard-pressed to lower the national inflation-control target for the first time in four years.

The vast majority of Chinese provinces have already slashed their consumer price index (CPI) targets to about 2 per cent for 2025 – markedly down from last year’s norm of 3 per cent.

The adjustments came after China’s national CPI grew by a mere 0.2 per cent last year and in 2023 – the lowest annual increases since 2009 – with multiple monthly readings dropping into negative territory.

Twenty-seven of China’s 31 provincial-jurisdictions set such a lower CPI target, which is often used as a gauge for monetary policy and has increasingly become an indicator of demand, according to the Post’s review of local governments’ annual work reports.

A few exceptions include the central province of Hunan, which said its target would be consistent with the national one; east China’s Shandong, which expected consumer prices “to remain reasonable”; and the Tibet autonomous region, which kept its annual CPI target unchanged from last year at 3 per cent.

Xu Tianchen, a senior China economist with the Economist Intelligence Unit, said that a 2 per cent target, while lower, is more realistic and implies that the central government will take it more seriously.

In contrast with the United States, where President Donald Trump has vowed to beat back inflation that saw the headline consumer price index rising in recent months – 2.7 per cent in November and 2.9 per cent in December, year on year – Beijing wants China to achieve a mild recovery in prices.