Inflation rises amid Lunar New Year spending as European stocks benefit

China's consumer prices increased by 0.5% year on year in January, the sharpest rise since August 2024, buoyed by Lunar New Year spending. The reading also exceeded economists' average estimate of 0.4%.

Core inflation, which excludes volatile food and energy prices, rose by 0.6% year on year, compared with a 0.4% increase in the previous month.

According to the Chinese state news agency Xinhua, government stimulus measures and festive consumer enthusiasm have driven demand, with spending on food, festive goods, and smart home appliances particularly strong in January.

On a monthly basis, China's CPI expanded by 0.7%, with services prices accounting for more than half of the increase.

China's Ministry of Culture and Tourism reported that holiday spending on tourism reached a record high during the eight-day holiday ending on 4 February, suggesting that strong consumer momentum may continue this month. A spokesperson for the Ministry of Commerce (MOC) stated that consumer markets are expected to maintain steady growth in the first quarter, supported by ongoing stimulus policies.

China launched a trade-in scheme and government-subsidised consumer spending earlier last year and added home appliances and digital products to the programme in January. The government allocated 81 billion yuan (€10.75 billion) in January to revitalise consumption in 2025. 

China's economic recovery has shown signs of acceleration following Beijing's efforts to boost domestic demand. The country managed to meet its 5% growth target in 2024, with key indicators, including retail sales and industrial output, exceeding analysts' expectations in December.

The surge in consumer spending is a positive sign for the recovery of the world's second-largest