(Yicai) Feb. 27 -- China may target annual consumer price growth of around 2 percent this year, fixing the rate below 3 percent for the first time since 2004, if the inflation goals set by local authorities are anything to go by.

The target for the Consumer Price Index is expected to be lowered to around 2 percent at the Two Sessions, the annual meetings of China’s top legislative and political advisory bodies scheduled to start next week, after the vast majority of provincial-level governments set theirs at a similar level earlier in the year.

The CPI rose 0.2 percent last year from 2023. Low inflation is a major issue that not only weighs on corporate profits but also negatively impacts consumer behavior, experts told Yicai. Setting a CPI goal of around 2 percent is more realistic and feasible at this time, they said, adding that gradually bridging the gap between inflation and demand will be a key focus of this year’s economic work.

The widespread lowering of provincial CPI targets is a sign of the urgent need to foster reasonable price increases, said Luo Zhiheng, chief economist at Yuekai Securities. In 2025, policymakers will place greater emphasis on price levels.

Policies are expected to focus more on stabilizing prices, with the central government ramping up macroeconomic adjustments and local governments strengthening industrial policy guidance to improve the supply-and-demand dynamics, he added.

A 3 percent CPI target would be the upper limit, according to Wu Chaoming, chief economist at Chasing Financial. However, recent years have been plagued with persistently low prices and insufficient demand so the policy focus needs to shift from curbing inflation to price recovery.

The CPI target serves more as a guide for expectations and lowering the target aligns with the current economic reality, Wu said, adding that in the face of insufficient demand, it is better to shift the focus from unattainable targets to those that are closer to reality.

Back Below Zero?

Last month’s CPI rose 0.5 percent from a year earlier, the most since August 2024, and 0.7 percent from December. The rebound in annual growth was mainly due to the impact of the Chinese New Year, noted Lu Ting, chief China economist at Japanese financial giant Nomura. But agricultural product prices fell further after the holiday, suggesting that the CPI may dip back below zero this month, he said.

When comparing January and February’s data with December 2024, the differences are not significant. Overall, prices remain at the bottom and have yet to stabilize across the board, Lu noted.

Although China met its 5 percent economic growth target last year, a perception of recovery among households and businesses is not evident, with some even feeling the economy is still sluggish, said Mao Zhenhua, chief economist at China Chengxin International.

“The core issue lies in the fact that price levels directly impact the daily experiences of businesses and consumers,” Mao pointed out.

Currently, there are few strong, incremental policies aimed at price stability and increase, Mao said. so the Two Sessions are expected to implement more substantial, unconventional policies and subsequent measures to drive a noticeable reversal in price trends, he added.

The Central Economic Work Conference, held late last year, called for a “moderately loose” monetary policy in 2025, ensuring that the growth of social financing and the money supply aligns with economic growth and expected “overall price levels.” It marked the first time that the annual high-level meeting explicitly included “overall price levels” as one of the key targets for economic regulation.

Editor: Emmi Laine