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China’s consumer price index (CPI) inflation rose to a near three-year high in December, signaling a gradual recovery in private consumption as Beijing continues to roll out stimulus measures to support the economy. Data released by the National Bureau of Statistics showed that CPI increased by 0.8% year-on-year, marking the third consecutive monthly rise and the strongest reading since February 2023. The figure was in line with market expectations and slightly higher than November’s 0.7% increase, reinforcing optimism that China’s long-running deflationary pressures may be easing.
On a month-on-month basis, CPI grew by 0.2% in December, reversing a 0.1% decline seen in the previous month. This rebound highlights improving consumer sentiment, supported by higher spending during the year-end holiday season on travel, food, and discretionary goods. Chinese authorities have also extended consumer subsidies for electronics and automobiles, a move aimed at stimulating domestic demand and shoring up household spending.
Economists noted that the steady rise in inflation suggests a slow but meaningful recovery in consumer activity. Analysts at ING said recent CPI data point to a long-awaited pickup from China’s deflationary slump. However, they emphasized that inflation remains relatively low, leaving room for further monetary easing. ING expects there is still a case for additional interest rate cuts in 2026 and forecast annual Chinese inflation at around 0.9% for that year.
While consumer inflation showed improvement, producer price index (PPI) inflation remained in contraction for the 39th consecutive month. Factory gate prices fell 1.9% year-on-year in December, slightly better than expectations for a 2% decline and an improvement from November’s 2.2% drop. Persistent overcapacity and weak demand continue to weigh on producer prices, highlighting ongoing challenges for China’s industrial sector.
Financial markets reacted modestly to the data. Chinese equities posted mild gains, with the CSI 300 and Shanghai Composite indexes rising 0.1% and 0.4%, respectively. Meanwhile, the yuan steadied near its strongest level in over two years. Overall, the latest inflation data suggest China may be gradually emerging from a prolonged deflationary period, though analysts widely agree that additional stimulus will be crucial to sustain the recovery.
