Rising imports of budget-priced Chinese goods are stoking deflationary risks across Europe, with consumer prices in the Eurozone falling for the fourth consecutive month. The trend is intensifying concerns over stagnant domestic demand and weak wage growth.
- Eurozone HICP fell 0.3% month-on-month in December 2025, marking four consecutive months of price declines.
- Chinese exports to Europe rose 28% year-on-year in 2025, particularly in electronics and textiles.
- Core inflation in the Eurozone stood at 0.9% year-on-year, indicating persistent underlying weakness.
- Germany’s industrial output dropped 1.2% in November 2025; Italy’s manufacturing PMI fell to 44.1.
- European Commission initiated preliminary probe into alleged dumping in solar panels and battery sectors.
- Retailers report up to 35% price cuts on imported Chinese goods, eroding profit margins.
Europe’s inflation outlook has taken a sharp downturn, with the Eurozone’s harmonized consumer price index (HICP) declining by 0.3% month-on-month in December 2025, marking the fourth straight month of price declines. This marks the first sustained deflationary trend since 2015, driven in large part by a 28% year-on-year surge in imports from China, particularly in electronics, textiles, and home appliances. The influx of low-cost goods has significantly undercut local producers, especially in Germany and Italy, where manufacturing margins have tightened under competitive pressure. The European Central Bank (ECB) has responded cautiously, with policymakers signaling a hold on interest rate cuts despite the deflationary momentum. ECB President Christine Lagarde emphasized that while price declines are concerning, they are largely imported and not indicative of weak underlying demand. However, core inflation—excluding energy and food—has remained subdued at 0.9% year-on-year, raising questions about the durability of the region’s recovery. Key indicators show growing strain: industrial output in Germany fell 1.2% in November 2025, while Italy’s manufacturing PMI dropped to 44.1, its lowest level in over three years. Analysts point to China’s export subsidies and overcapacity in key sectors as structural drivers behind the price pressure. The European Commission has launched a preliminary investigation into alleged dumping practices in the solar panel and battery sectors, with formal measures expected by Q2 2026. The impact is already visible in retail. Major chains such as MediaMarkt and Zalando have reported increased sales volumes but declining profit margins, with some product categories seeing price reductions of up to 35% compared to 2024. Consumers are benefiting from lower prices, but the broader economy risks falling into a deflationary trap, where delayed spending reinforces declining demand and weak investment.