China’s inflation picture sharpened in December. Consumer prices rose at the fastest pace in nearly three years, but factory-gate prices stayed in deflation, underscoring an economy where household spending is improving around holidays while underlying demand and pricing power remain weak. December CPI rose 0.8% year over year, while PPI fell 1.9% year over year, according to National Bureau of Statistics data.
The catalyst was a mix of seasonal food dynamics and policy support that has not yet translated into broad-based demand. Fresh vegetable prices surged 18.2% year over year due to winter supply shortages, while pork prices fell 14.6%, a split that helped lift headline CPI without signaling a true demand boom, as detailed in the food breakdown. Core CPI, which strips out food and energy, ran at 1.2%, and CPI rose 0.2% month over month.
Why it matters now: Beijing is trying to escape a multi-year deflation trap without reigniting property excess. Even with December’s pickup, China’s CPI for 2025 was flat, missing the official target of “around 2%,” suggesting stimulus to date has been too incremental to change household behavior or private investment. At the same time, PPI has now been negative for more than three years, reflecting overcapacity, price wars, and weak end-demand that compress corporate profits and hiring.
Immediate impact showed up in markets as a small relief rally. Chinese equities posted mild gains after the print, with the CSI 300 up about 0.1% and the Shanghai Composite up about 0.4%, while the yuan steadied near its strongest level in roughly 2.5 years, according to market reaction notes.
For readers, the key takeaway is that China is not “reflating” in a clean, demand-led way. Watch whether core inflation accelerates above 1.2% and whether PPI’s -1.9% improves further. That combination would be a stronger signal for global cyclicals and commodity demand than a food-driven CPI bounce.
