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Summary:China CPI rose 0.8% y/y in December, a 34-month highFull-year CPI at 0.0%, avoiding outright deflationFood prices driving gains; pork drag easingCore inflation steady, property prices still deflationaryFurther monetary easing seen as likelyChina narrowly avoided outright deflation in 2025, with consumer inflation ending the year at its highest level in nearly three years, though, analysts at ING caution that price pressures remain subdued and well below levels seen in other major economies.China’s consumer price index (CPI) rose 0.8% year-on-year in December, the strongest reading since February 2023 and in line with market expectations. That brought full-year CPI inflation to 0.0%, allowing China to sidestep an annual deflation print, following several years of near-zero inflation.The pickup in headline inflation continues to be driven largely by food prices, which rose 1.1% year-on-year, a 14-month high. Fresh vegetable and fruit prices recorded the sharpest gains, while pork prices — still deeply negative — have become less of a drag, with the year-on-year decline narrowing for a third consecutive month. Analysts expect the pork cycle to turn later this year, potentially adding modest upward pressure to food inflation.By contrast, non-food inflation remained unchanged at 0.8%, reflecting a mixed underlying picture. Household appliance prices rose sharply as the effects of earlier trade-in incentives fed through, while services inflation — particularly tourism and healthcare — continued to outpace goods prices. However, deflation persisted in housing-related categories, with rents and residence costs still falling amid ongoing property-sector weakness.Core inflation, which strips out food and energy, was steady at 1.2% for a third straight month, suggesting underlying price momentum remains limited.At the producer level, PPI deflation eased to –1.9% year-on-year, marking a 16-month high but extending a deflationary streak now approaching three and a half years. The ING note argues that while the worst of China’s deflationary pressure may be behind it, any recovery in inflation is likely to be gradual.Looking ahead, analysts forecast CPI inflation of around 0.9% in 2026, a modest improvement but still low by global standards. With inflation contained, they see scope for further monetary easing, including the possibility of a 10-basis-point rate cut in the first half of 2026.
This article was written by Eamonn Sheridan at investinglive.com.
💡 DMK Insight
China’s CPI hitting a 34-month high is a game changer for traders: This uptick to 0.8% year-over-year signals a potential shift in consumer sentiment and spending, which could influence global markets. With full-year CPI at 0.0%, the risk of deflation has been averted, but the underlying dynamics are crucial. Food prices, particularly pork, have been a significant driver, and while core inflation remains steady, the property market is still facing deflationary pressures. Traders should keep an eye on how these factors might prompt further monetary easing from the People’s Bank of China, which could lead to increased liquidity and impact asset prices across the board. The broader implications for commodities, especially agricultural products, could be significant. If food prices continue to rise, we might see a ripple effect on related markets. Watch for key levels in the commodity space, particularly in pork and grains, as they could indicate broader inflationary trends. The immediate focus should be on how this CPI data influences the yuan and related forex pairs, especially if the PBOC takes action. Keep an eye on the 0.8% CPI level as a potential pivot point for market sentiment.
📮 Takeaway
Watch for PBOC’s response to the 0.8% CPI; it could impact yuan and commodity prices significantly.
