China Faces Continued Deflation Amid Trade Tensions and Weak Domestic Demand

China’s consumer prices fell for the third consecutive month in April, underscoring persistent deflationary pressures as the economy struggles with a property slump, weak consumer confidence, and trade tensions with the U.S. The Consumer Price Index (CPI) dipped 0.1% year-on-year in April, matching March’s decline and aligning with Reuters' forecasts. On a monthly basis, CPI edged up 0.1%, rebounding slightly from March’s 0.4% fall.

Core inflation, which excludes food and energy, remained steady at 0.5% year-on-year, indicating subdued underlying demand. The Producer Price Index (PPI), a gauge of factory-gate prices, declined 2.7% in April from a year earlier, marking the steepest drop in six months. While this was less severe than the expected 2.8% fall, it still reflects weakening industrial momentum.

China’s economic outlook remains clouded by a prolonged real estate downturn, high household debt, and rising unemployment fears—all of which are weighing on domestic consumption and investment. In response, major e-commerce platforms like JD.com and Alibaba’s Freshippo are helping exporters shift focus to the domestic market, potentially adding further downward pressure on prices.

External risks are mounting as the trade war between China and the United States intensifies. However, hope for a potential thaw comes as both nations prepare for trade talks in Switzerland. Despite this, global investment banks, including Goldman Sachs, have revised down China’s GDP growth forecasts for 2025 to below the government’s 5% target, citing the escalating trade dispute as a key risk.

With both consumer and producer prices falling and growth projections dimming, Beijing may face increased pressure to roll out additional stimulus measures to stabilize the economy and restore market confidence.