Factory-gate prices also stabilised last month following falls in December and January, as the headline producer price index (PPI), which reflects the prices that factories charge wholesalers for products, remained unchanged month on month in February, although fell by 1.4 per cent, year on year, down from a fall of 0.8 per cent in January.

“Factory-gate prices stopped falling last month, as China’s reopening helped put a floor under global commodity prices. Meanwhile, consumer price inflation dropped back sharply due to a fall in food prices and some residual seasonality,” said Julian Evans-Pritchard and Zichun Huang, China economists at Capital Economics.

“Looking through this volatility, the big picture is still that China’s reopening is nudging up core inflation. But the impact has so far been marginal and, while we expect a bigger impact from reopening before long, we doubt it will push up inflation as much as it did in other economies.”

China’s core consumer inflation rate, excluding the volatile prices of food and energy supplies, increased by 0.6 per cent in February compared with a year earlier, down from 1 per cent growth in January.

The drop in core consumer inflation was due to seasonality caused by the earlier timing of the Lunar New Year holiday week in 2023 compared with 2022, Evans-Pritchard and Huang added, who pointed to an average increase of 0.8 per cent in January and February compared with a 0.7 per cent increase, year on year, in December.

“This reflects a surge in demand for travel and other in-person services following [China’s] reopening,” they added.

“CPI inflation dropped sharply in February. The market expected CPI inflation to decline, but it dropped much more than expected,” said Zhang Zhiwei, president of Pinpoint Asset Management.

“This casts doubt on the strength of domestic-demand recovery in the household sector. It is puzzling to me, as it contradicts with data points that suggest the recovery of domestic demand is quite strong.

“Nonetheless, weak CPI inflation allows the government to launch more monetary-easing policies. New loans in January hit a historical high. Now that inflation is not a concern, new credit growth will likely stay strong in the coming months.”

Analysts at Nomura also pointed to the “distortion” caused by the week-long Lunar New Year in January.

A significant slowdown in exports, a sharp contraction of local government land sales and surging fiscal expenditures, a sharp contraction in property markets, and a slow recovery in the tourism market, may have all played a role in the “surprisingly low CPI inflation reading during the initial stages of reopening”, they added.

“In February, affected by factors such as a fall in consumer demand after the Chinese New Year and adequate market supply, the consumer price index dropped from the previous month, and the year-on-year increase fell back,” said NBS statistician Dong Lijuan.

“In February, industrial production resumed at a faster pace, and market demand improved, with the PPI flat from a year earlier; it continued to fall, year on year, due to a higher base of comparison.”

Additional reporting by Mia Nulimaimaiti