China imports cut euro area goods inflation by 0.27 pp
A new European Central Bank analysis reveals that declining prices of imports from China have significantly dampened euro area non-energy industrial goods inflation. Increased exposure to Chinese products reduced NEIG inflation by 0.27 percentage points in April 2026.
China's price advantage deepens
Since the second half of 2025, prices of imports from China have been declining year on year, significantly dampening euro area goods inflation.
In March 2026, these prices fell by 3.3 percent, following a 4.6 percent decrease in February.
This decline was notably larger than for other extra-euro area imports.
China's share in extra-euro area imports also increased from 14 percent to 17 percent since 2024, reflecting its growing competitiveness.
This heightened exposure, coupled with falling prices for consumer goods, has kept euro area non-energy industrial goods (NEIG) inflation subdued.
A specific NEIG sub-index for 'China-exposed' goods (those with above-median import content from China) consistently showed lower inflation than overall goods inflation.
Items such as bicycles, tools, appliances, furniture, textiles, and information and communication technology goods experienced pronounced import price declines in 2025, recording inflation rates often below their historical averages.
The estimated effect of these import price shocks from China reduced NEIG inflation by around 0.27 percentage points in April 2026.
Modeling the pass-through
Empirical evidence from a Bayesian Vector Autoregression model for 39 non-energy industrial goods (NEIG) items reveals a heterogeneous pass-through of import prices from China.
'China-sensitive' sectors show significant NEIG inflation responses to these shocks.
A 10 percent drop in sector-level Chinese import price growth is associated with a peak effect of a 0.1-0.7 percentage point decline in goods inflation in the most sensitive sectors, such as furniture, small electric appliances, household textiles, glassware and tableware, and major electric appliances.
These effects build up gradually, with the strongest negative impact observed after 9 to 18 months.
China also influences euro area pricing through indirect channels like trade redirection or stronger competition.
The model mitigates exchange rate measurement risk by positioning the USD/EUR rate before Chinese import prices, isolating price changes not explained by currency fluctuations.
Limited, yet persistent
Overall, prices of imports from China remain an important source of external price pressures for the euro area, even if their estimated effect on consumer goods inflation is limited.
This disinflationary pressure could persist due to factors like persistent excess capacity, weak domestic demand, renminbi depreciation, and potential redirection of Chinese exports to the euro area.
However, emerging signs of upward pressure from higher oil prices and producer prices in China could support some reflation, suggesting a complex outlook for goods inflation.