China inflation hits three-year high in December as full-year CPI misses target

China’s consumer inflation accelerated in December to its fastest pace in almost three years as spending picked up ahead of the New Year holiday, while factory gate deflation remained entrenched, signaling that underlying demand remained weak.

Consumer prices rose 0.8% year-on-year, their highest level since February 2023, according to data from the National Bureau of Statistics Friday. This improvement follows a 0.7% increase in November and matches the expectations of economists polled by Reuters.

The rebound in consumer prices was largely driven by fresh vegetables, which rose 18.2% from a year earlier due to supply shortages during the cold winter. Among other food products, pork prices fell 14.6%.

Core inflation, which excludes volatile food and energy prices, rose 1.2% year-on-year in December, unchanged from the previous month’s growth.

On a monthly basis, consumer prices rose 0.2%, above the 0.1% gain expected in a Reuters survey.

Yet, for the whole of 2025, the inflation indicator remained stable, missing the official objective of “around 2%”, signaling that the stimulus measures implemented by Beijing so far, including a consumer goods exchange programhave done little to stimulate demand.

Production price fell 1.9% in December compared to the previous year, a decline better than the forecast decline of 2%, extending the deflationary streak beyond three years. The decline eased from November’s 2.2% drop, partly due to higher prices for non-ferrous metal materials.

Prices of durable consumer goods fell 3.5% from the previous year.

Lijuan Dong, chief statistician of the NBS, said gold jewelry prices jumped 68.5 percent year-on-year in December, driven by a global rush for the precious metal against a backdrop of recession fears and market uncertainty.

The Wall Street bank said the contraction in fixed asset investment likely deepened in December, falling about 11.8% from a year earlier. a drop of 11.1% in November. Industrial production growth is estimated to have increased slightly to around 4.9%, supported by a recovery in manufacturing activity and “the usual acceleration in production at the end of the year”.

China’s manufacturing activity expanded unexpectedly in December, ending a record eight consecutive months of decline. The official Purchasing Managers’ Index (PMI) rose to 50.1 from 49.2 the previous month, above the 50-point threshold separating growth and contraction.

At a key economic policy-setting meeting in early December, the ruling Communist Party leadership reiterated plans to boost consumption and stabilize the real estate market, even though similar commitments in the past have failed to yield significant results.

A recent article published by the Communist Party’s flagship magazine Qiushi Journal called for “the implementation of a stronger and more comprehensive set of measures to stabilize the real estate sector, rather than a piecemeal approach.”

The government could introduce more short-term easing measures, including cutting mortgage rates and easing restrictions on home buying, Macquarie’s Hu said. However, these measures may not be “strong enough to reverse the trend”, warned Hu, estimating that surface new housing sales are expected to fall by 7% in 2026 after an 8% drop in 2025.

Chinese policymakers have also stepped up efforts to curb intense price wars that have hurt corporate profitability and ordered production cuts in some sectors to curb oversupply.

However, industrial companies saw their profits fall 13.1% year-on-year in November, their biggest decline in more than a year.

The country’s automakers have rolled out a new wave of price cuts and benefits earlier this year, as demand remained sluggish and the government withdrew part of the tax incentive for eligible electric vehicles.

Ex-factory prices in the automobile industry fell by 2.8% in 2025. In December, the prices of gasoline vehicles and new energy vehicles fell by 2.4% and 2.2%, respectively, from a year earlier, according to official data.