China’s CPI Data Signals Deepening Demand Weakness Despite Stimulus Push

China’s April 2025 inflation figures reveal ongoing softness in domestic demand, highlighting the limitations of Beijing’s recent policy efforts to spur consumption and investment. Headline consumer inflation (CPI) came in at -0.1% yoy, unchanged from March and matching forecasts, while core CPI excluding food and energy rose just 0.5% yoy. On a monthly basis, CPI edged up a modest 0.1%, with little sign of momentum building.

The weakness is very broad-based and this is before tariff related issues. Food prices declined 0.2% yoy, dragged down by ongoing deflation in pork, vegetables, and staple grains. Transportation and communication costs fell by 3.9% yoy, reflecting sluggish household mobility and declining logistics activity. Meanwhile, sectors like healthcare (+0.2%) and education (+0.7%) saw mild increases, but not enough to offset the drag from weak consumer-facing categories.

At the same time, the Producer Price Index (PPI) dropped -2.7% yoy and -0.4% mom, extending over a year of industrial deflation. This deepening factory-gate price decline reflects persistent excess capacity, weak private-sector investment, and falling input demand despite efforts to stabilize industrial activity through credit easing and export diversification.

The low inflation prints coincide with a spate of new policy actions, including a 50 bps cut to the reserve requirement ratio, a 10 bps cut to the benchmark policy rate, targeted re-lending programs (such as the 500 billion yuan facility for elderly services), and efforts to support the stock market through Central Huijin and expanded credit lines for SMEs and tech firms. However, much of this stimulus appears reactive, aimed at short term stabilization rather than long term structural reform.

Compounding the issue is weak consumer confidence. According to Caixin, banks are being pushed to increase consumer credit, but household appetite for debt remains low, with rising delinquencies among small businesses and personal borrowers. In real terms, inflation adjusted income growth remains sluggish, especially in lower-tier cities where falling property values are dampening wealth effects.

In this context, China’s muted CPI and deeply negative PPI suggest that disinflation is not merely cyclical but rooted in structural issues namely with oversupply, weak domestic confidence, and the fading efficacy of traditional stimulus tools. While exports have temporarily buoyed growth (up 8.1% in April yoy globally), that strength masks a -21% collapse in shipments to the U.S., as China increasingly relies on ASEAN and EU trade partners to absorb surplus production. This rebalancing is fragile and could face geopolitical friction as trade surpluses rise.

Unless Beijing finds a way to sustainably boost household income and restore confidence, inflation will remain subdued, and the risk of a growing threat resembling a pre-COVID Japanese style stagnation economy where monetary tools lose their bite.