China Inflation Hits Near Three-Year High in December, Full-Year CPI Misses Target

Consumer inflation in China accelerated in December to its fastest pace in nearly three years, supported by stronger seasonal spending ahead of the New Year holiday, while factory-gate prices remained in deflation, highlighting persistent weakness in underlying demand.

Consumer prices rose 0.8% year on year in December, the highest level since February 2023, according to data released by the National Bureau of Statistics on Friday. The reading followed a 0.7% increase in November and was in line with market expectations.

On a monthly basis, prices increased 0.2%, exceeding forecasts of a 0.1% rise.

The rise in headline inflation was largely driven by food prices, particularly fresh vegetables, which surged 18.2% from a year earlier due to supply constraints caused by cold winter conditions. In contrast, pork prices fell 14.6% year on year.

Core inflation, which excludes volatile food and energy prices, rose 1.2% in December, unchanged from the previous month, indicating limited improvement in broader consumer demand.

Despite the year-end pickup, inflation for 2025 as a whole remained flat, falling short of the government’s target of “around 2%.” The data suggest that Beijing’s stimulus measures to date, including consumer goods trade-in programmes, have had a limited impact on boosting household spending.

Producer prices declined 1.9% year on year in December, marking an improvement from a 2.2% drop in November but extending the deflationary streak beyond three years. The moderation was partly attributed to firmer prices for non-ferrous metal materials.

Prices for durable consumer goods fell 3.5% from a year earlier, reflecting continued pressure from weak demand and excess capacity.

Lijuan Dong, chief statistician at the National Bureau of Statistics, said gold jewellery prices jumped 68.5% year on year in December, driven by heightened global demand for the metal amid recession fears and market uncertainty.

Deflationary pressures persist

While China remains on track to meet its growth target of about 5% for last year, economists say deflationary risks continue to weigh on the economy. Consumer spending has remained cautious due to an uncertain employment outlook and a prolonged property downturn that has eroded household wealth.

Larry Hu, chief China economist at Macquarie, expects consumer inflation to remain flat in 2025, while producer price deflation is forecast at 2.7%, which would mark the longest deflationary period on record.

Economists at Bank of America Global Research estimate that China’s real GDP growth likely slowed to 4.5% in the fourth quarter, down from 4.8% in the previous quarter. They also said fixed-asset investment contraction likely deepened in December, while industrial production growth edged higher on year-end manufacturing activity.

China’s manufacturing sector showed signs of stabilisation in December, with the official purchasing managers’ index rising to 50.1, up from 49.2 in November, returning above the threshold separating expansion from contraction.

Property sector remains a drag

At a key policy meeting in early December, the ruling Communist Party of China reiterated plans to boost consumption and stabilise the property market. However, similar pledges in the past have struggled to deliver sustained results.

An article published by the party’s flagship journal, Qiushi, called for stronger and more comprehensive measures to address the real estate downturn, warning against incremental approaches.

Macquarie’s Hu said further easing measures, including mortgage rate cuts and relaxed home-purchase restrictions, could be introduced, though he cautioned they may not be sufficient to reverse the decline. He expects new home sales by floor space to fall 7% in 2026, following an estimated 8% decline in 2025.

Industrial firms continued to face pressure, with profits falling 13.1% year on year in November, the sharpest drop in over a year. Carmakers have also rolled out fresh price cuts in early 2026 as demand remains subdued and some electric vehicle tax incentives have been withdrawn.