China’s inflation rose at its fastest pace in five months, driven by holiday spending, which is expected to be a continued source of encouragement for European consumer stocks.
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.
Stimulus measures and festive shopping boost consumption
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.
An encouraging sign for European markets
The surge in consumer spending is a positive sign for the recovery of the world’s second-largest economy, though the seasonal boost may be temporary.
It also serves as an encouraging signal for European markets, following last week’s record highs. The Euro Stoxx 600 and Germany’s DAX both reached new peaks last week, rising by 7% and 9%, respectively, since the start of the year. France’s CAC 40 also recorded strong growth, up 8% year to date, driven by its luxury goods sector.
Despite ongoing economic uncertainty and global challenges under Donald Trump’s presidency, European stock markets have been resilient this year, outperforming their global peers. China’s economic improvement bolstered European luxury goods stocks, alongside robust quarterly earnings from Richemont. Hermès and Richemont gained 15%, and 25%, respectively, this year, contributing to broader market gains.
However, Europe’s largest consumer stock, LVMH, has risen 5% this year after paring gains following its subdued results last month. Before the earnings release, the stock had been up 18%. Despite this, Chinese consumption remains a key factor in supporting its performance. LVMH stated that strong spending by Chinese customers in Europe and Japan contributed to its growth.
Challenges remain in the Chinese economy
However, challenges remain in the Chinese economy, which are likely to encourage Beijing to continue expanding its stimulus policy. China’s factory gate prices, as measured by the Producer Price Index (PPI), remained in deflation for the 28th consecutive month in January, declining by 2.3% year on year and remaining flat from December. The data suggests that deflationary pressures persist in the Chinese economy. An analyst at the National Bureau of Statistics (NBS) attributed the decline in PPI to “off-season” industrial production during the holiday period.
The escalating US-China trade war is also expected to weigh on China’s economic outlook. Last week, US President Donald Trump’s administration imposed an additional 10% tariff on Chinese goods.
In response, China’s State Council Tariff Commission announced on 4 February that it would impose a 15% levy on US coal and liquefied natural gas (LNG), along with a 10% duty on American crude oil, farm equipment, and certain vehicles, effective from today.
