Flat full-year inflation and persistent factory-gate deflation raise expectations of fresh stimulus in 2026
Consumer inflation in China in December reached the highest level in nearly three years, but the full-year price rise in 2025 moderated to the weakest level in 16 years, which not only highlights the persistent underlying soft demand but also the strengthening expectation of further policy stimulus.
Data from the National Bureau of Statistics showed consumer prices climbed 0.8 per cent year-on-year in December, up from 0.7 per cent in November and in line with market expectations. However, for the full year 2025, inflation was flat, falling well short of Beijing’s “around 2 per cent” target.
The December rise was driven largely by food prices. Fresh vegetable prices surged 18.2 per cent, while beef prices rose 6.9 per cent, boosted by pre-Lunar New Year demand and supportive government policies, NBS statistician Dong Lijuan said.
Despite the headline uptick, economists warned that underlying demand remains weak.
“Despite expectations of a recovery, inflation remains relatively low and should not preclude further monetary easing this year,” said Lynn Song, chief economist for Greater China at ING.
China’s prolonged property sector downturn, sluggish job market, and intensifying price competition among manufacturers continue to weigh on household demand and confidence. Overcapacity remains a major drag, analysts said.
Core inflation, which strips out food and fuel, held steady at 1.2 per cent in December. Pork prices fell 14.6 per cent, while prices of gold jewellery surged 68.5 per cent.
Factory-gate deflation also persisted. The producer price index fell 1.9 per cent year-on-year in December, extending a deflationary streak that has lasted more than three years, though the pace of decline eased from November’s 2.2 per cent fall. For the full year, producer prices dropped 2.6 per cent.
Given the slowdown in economic momentum in the second half of last year, markets are increasingly watching for more policy support in 2026. Beijing has already allocated 62.5 billion yuan from special treasury bonds to continue funding its consumer goods trade-in scheme next year, and has pledged to flexibly use monetary tools, including interest-rate and reserve-ratio cuts, to keep liquidity ample and spur growth.
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