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Prices for things in China went up for the first time in six months. But we can’t say for sure that deflation is done just yet

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China’s prices for everyday goods went up a bit in February, marking the first increase in six months. This happened mostly because people spent more during the Lunar New Year holiday, causing prices to rise.

The government data from Saturday showed that the Consumer Price Index (CPI) went up by 0.7% in February compared to the same time last year. This was more than what experts had predicted in a Reuters poll, where they expected a rise of only 0.3%.

Before this, the prices either stayed the same or went down since August 2023. In January, the prices went down the fastest in 15 years.

But some analysts say that this increase is partly because the Lunar New Year holiday was in February this year and in January last year. The date of the holiday changes each year based on the moon cycles.

“I think it is too early to say that prices going down in China is over,” said Zhiwei Zhang, who works as an economist. “People in the country are still not buying much.”

China faced low prices for most of last year because of problems in the property market, stock market issues, and people not spending much. The People’s Bank of China (PBOC) tried to fix this by reducing interest rates a few times, hoping it would make banks lend more money and bring prices back up to the target of 3%. However, the CPI only reached 0.2% in 2023, way below the goal.

Having prices go down is not good for the economy because people and businesses might wait to buy things, thinking the prices will go down more. This could make things worse, leading to even less spending, more job cuts, and more people without jobs.

In February, prices for services were high, especially for tourism and entertainment. The sub-index for tourism went up by 23.1% compared to a year ago, the highest among all categories.

But experts think that the holiday effect will go away next month. “We expect CPI inflation to fall to 0.4% year-on-year in March,” said Nomura analysts on Monday. They also mentioned that food prices have been going down since the celebrations ended.

On the other hand, the prices for goods at the factory gate went down even more last month. The Producer Price Index, which shows wholesale prices, dropped by 2.7% compared to a year ago. This was the 17th month in a row with falling prices, showing that there is still pressure for prices to keep going down, and people are not buying as much.

This year, the government in Beijing has a hard job to do—making the economy grow and stopping prices from going down. Premier Li Qiang said last Tuesday that they want the economy to grow by around 5% and prices to go up by 3%.

But he also said they want to change the way the economy grows and lower the risks of people owing too much money. This might mean that local governments will not spend as much on building things.

The governor of the PBOC said last Wednesday that they will keep helping the economy by making it easier for people to get money. This could mean that they will reduce interest rates even more this year.

The head of the country’s economic planner also said on the same day that they will start a new plan to make people spend more money. This includes promoting big upgrades for things and replacing old stuff like cars and home appliances with new ones.

But what’s really important for the economy to grow and prices to go up is how well Beijing does in making people want to spend more and feel confident about it, say the analysts. “Now that the National People’s Congress is mostly over, everyone will be watching the things they are doing to boost demand, especially the program where people can trade in their old stuff for new ones,” said Citi analysts on Monday.

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