Is China Still in Deflation? After a 41-Month Slide, the Data Says No
Factory-gate prices fell for 41 straight months. Consumer inflation spent three years at zero. We track the episode — and its apparent end in spring 2026 — through six charts of prices, money and rates. The reflation is real; the demand recovery behind it is not.
WorldPulse Research·
PPI (YoY)
4.1%
Jun 2026
CPI (YoY)
1.0%
Jun 2026
M1 growth
4.0%
Jun 2026
M2 growth
8.0%
Jun 2026
1y LPR
3.00%
Jul 2026
Retail sales
1.0%
Jun 2026
Latest available reading for each indicator; figures update automatically as new data is published. Source: NBS China, PBoC, BIS.
China has just lived through one of the longest deflationary episodes any major economy has recorded since 1990s Japan. NBS data shows the producer price index fell year-over-year for 41 consecutive months, from October 2022 through February 2026, bottoming at -5.4% in June 2023. Consumer inflation, meanwhile, averaged 0.24% in 2023, 0.24% in 2024 and just 0.05% in 2025 — eleven separate months printed below zero.
As of mid-2026, the headline episode is over. PPI turned positive in March 2026 and reached +4.1% in Jun 2026 — the strongest reading since mid-2022. CPI has held near 1% through the first half of 2026 (1.0% in Jun 2026). By the narrow definition — falling prices — China is not in deflation any more.
But the same data shows what the reflation is not: a demand revival. NBS retail sales growth collapsed to an average of roughly 0.6% over March–June 2026, dipping negative in May. Monthly CPI momentum was negative in three of the four months to June 2026. And BIS data has real residential property prices still falling as of the latest reading. This article walks through the full episode — the price slide, the money-supply signal, the policy response and the turn — chart by chart. It is a companion to our cross-check of China’s official GDP against hard activity data.
1. Forty-one months below zero at the factory gate
The core of China’s deflation was industrial. From October 2022 through February 2026, NBS producer prices fell year-over-year every single month — 41 in a row, with the deepest print at -5.4% in June 2023. The culprits: overcapacity in autos, solar, steel and chemicals, a property bust that gutted construction demand, and commodity base effects. The streak broke in March 2026 (+0.5%), and by June 2026 PPI ran at +4.1% — a swing of five percentage points in twelve months, coinciding with Beijing’s capacity-discipline (“anti-involution”) campaign in oversupplied industries.
Consumer prices never collapsed the way factory-gate prices did — they simply flatlined. The last CPI reading at or above 2% was January 2023. From then through the end of 2025, NBS consumer inflation averaged 0.12%, with a low of -0.8% in January 2024. The first half of 2026 finally brought readings near 1% (average 0.98%). One caution, dated to publication: month-over-month CPI was negative in three of the four months to June 2026, so part of the year-over-year lift is arithmetic — soft 2025 months dropping out of the base — rather than fresh momentum.
The cleanest single gauge of China’s credit demand is the gap between M1 (cash and demand deposits — money ready to be spent) and M2 (which adds time deposits — money parked). When firms and households hoard rather than transact, M1 growth sinks below M2 growth. PBoC data shows M1 growth went outright negative through mid-2024, troughing at -3.3% in September 2024 while M2 still grew near 7% — a gap of 10 percentage points, the widest in the series. By June 2026 M1 was growing 4.0% against M2’s 8.0% — a gap of 4.0 points. Half the distance closed; the other half is the demand problem that remains.
M1 vs M2 money supply growth
Year-over-year. M2 growth computed from the PBoC level series. M1 uses the official comparable-basis series (the PBoC redefined M1 in January 2025 to include personal demand deposits).
4. Eight rate cuts, then a fourteen-month pause
The policy response was steady rather than shock-and-awe. Between December 2021 and May 2025 the PBoC guided the 1-year loan prime rate down in eight steps, from 3.85% to 3.00%, and the mortgage-benchmark 5-year LPR from 4.65% to 3.50%. The reserve requirement ratio for large banks fell from 12.5% in 2020 to 9.0% by May 2025. Then everything stopped: as of the July 2026 fixing, both LPRs had been unchanged for fourteen months. The arithmetic explains why the cuts felt powerless for so long — with PPI at -5.4% in June 2023, an industrial borrower paying the 3.55% LPR faced a real borrowing cost near 9%. The 2026 reflation did what no cut could: by June 2026, the same calculation gives a real rate of about -1%, the first negative reading since 2022.
If rising prices reflected households spending again, retail sales would show it. They show the opposite: NBS retail sales growth averaged 3.7% in 2025, then collapsed to roughly 0.6% on average over March–June 2026, including an outright -0.6% decline in May 2026 (latest: 1.0% in Jun 2026). The property market tells the same story with a lag: the BIS real residential price index peaked at 113 in Q3 2021 and stood at 88.9 by its latest reading (Q3 2025) — down about 21% from the peak and still falling 5.3% year-over-year. The price turn, in other words, came from the supply side — capacity cuts and base effects — not from consumers returning.
BIS residential property price index (real terms, 2010 = 100). Latest: 88.9 (Jul 2025).
The deflation episode by the numbers
Indicator
Worst point
At publication (Aug 2026)
PPI, year-over-year
-5.4% (Jun 2023); 41 months negative
+4.1% (Jun 2026)
CPI, year-over-year
-0.8% (Jan 2024); 0.05% avg in 2025
+1.0% (Jun 2026)
M1 growth
-3.3% (Sep 2024)
+4.0% (Jun 2026)
M1–M2 growth gap
-10.1 pts (Sep 2024)
-4.0 pts (Jun 2026)
1-year LPR
3.85% (2021, pre-cuts)
3.00% (held since May 2025)
Real 1y LPR vs PPI
+9.0% (Jun 2023)
-1.1% (Jun 2026)
Retail sales, year-over-year
-0.6% (May 2026)
+1.0% (Jun 2026)
BIS real property index (2010=100)
-21% from Q3 2021 peak
88.9 (Q3 2025, latest)
Values as of publication (August 9, 2026); charts above stay live as new data arrives. Sources: NBS, PBoC, BIS.
The verdict: deflation is over, the demand problem isn’t
The deflationary episode was real, long and severe — 41 months of falling factory-gate prices and three years of consumer inflation within rounding error of zero. As of mid-2026 it has ended at the headline level: PPI has been positive since March 2026 and CPI is back near 1%. The M1 recovery — from -3.3% in September 2024 to around 4-6% growth through the first half of 2026 — says the most acute phase of money hoarding is past.
But the composition of the turn matters. Prices reflated while retail sales stalled, monthly CPI momentum stayed negative, and property kept falling — the signature of a supply-led reflation: capacity discipline and base effects, not consumers returning. The PBoC’s 85 basis points of LPR cuts didn’t break the deflation while it raged; the pricing cycle turned ten months after the last cut. Whether the 2026 reflation holds depends on the variable that never recovered — household demand. That is the series to watch, and the one this page will keep updating.
Frequently Asked Questions
Is China in deflation in 2026?
Not at the headline level any more. NBS data shows producer prices fell year-over-year for 41 consecutive months from October 2022 through February 2026, then turned positive in March 2026 and reached +4.1% by June 2026. Consumer inflation averaged roughly 1% in the first half of 2026 after three years near zero. But the demand-side symptoms persist: retail sales growth collapsed to around 0.6% in 2026 and BIS data shows real property prices still falling.
Why was China’s CPI so low for so long?
Three forces compounded: a property bust that destroyed household wealth and confidence (BIS real residential prices fell about 21% from their 2021 peak), industrial overcapacity that pushed factory-gate prices down for 41 straight months, and cautious households parking money in time deposits instead of spending — visible in M1 growth turning negative in 2024. CPI averaged just 0.24% in 2023, 0.24% in 2024 and 0.05% in 2025.
What is the loan prime rate (LPR)?
The loan prime rate is China’s benchmark lending rate, set monthly from rates that major banks quote to their best customers under People’s Bank of China guidance. The 1-year LPR anchors corporate and household loan pricing; the 5-year LPR anchors mortgages. Between December 2021 and May 2025 the PBoC guided the 1-year rate from 3.85% to 3.00% and the 5-year from 4.65% to 3.50%; both were then held unchanged for over a year through July 2026.
Is China repeating Japan’s 1990s deflation?
The setup rhymes — a property bust, weak credit demand despite falling rates, and households repairing balance sheets. But the trajectory differs so far: Japan’s consumer deflation persisted on and off for over a decade, while China’s factory-gate deflation broke after roughly three and a half years, with PPI positive from March 2026. China also never hit the zero lower bound (the 1-year LPR stopped at 3.00%), leaving conventional easing in reserve. The unresolved parallel is demand: near-zero consumer inflation and falling property prices are still Japan-like.
Data & methodology. Indicators are served live from the WorldPulse knowledge graph and redraw as new observations are published; the prose describes the data as of August 9, 2026. CPI, PPI and retail sales are from the National Bureau of Statistics of China; money supply (M1, M2), loan prime rates and reserve requirement ratios from the People’s Bank of China; residential property prices from the Bank for International Settlements (real index, 2010 = 100, published with roughly a year’s lag). M2 growth is computed by WorldPulse from the PBoC level series; M1 growth uses the official comparable-basis series, which spans the PBoC’s January 2025 redefinition of M1 (inclusion of personal demand deposits). “Real LPR” is the 1-year loan prime rate minus year-over-year PPI or CPI. This article is analysis, not investment advice.