December CPI hits a three-year high, yet weak demand and property woes keep Beijing under pressure
MARKET INSIDER – China ended the year with a paradox that captures its economic dilemma. Consumer inflation accelerated to its fastest pace in nearly three years in December, but the full-year picture undershot Beijing’s own targets—underscoring how fragile domestic demand remains despite repeated stimulus efforts.
Data released Friday by the National Bureau of Statistics showed consumer prices rose 0.8% year on year in December, the strongest reading since February 2023 and slightly above November’s 0.7% increase. The figure met market expectations, supported by a seasonal pickup in spending ahead of the Lunar New Year. On a monthly basis, prices climbed 0.2%, also beating forecasts.
The rebound, however, was narrow. Inflation was driven largely by fresh vegetables, whose prices jumped 18.2% amid cold-weather supply disruptions, while pork prices fell 14.6%. Core inflation—excluding food and energy—remained unchanged at 1.2%, signaling that underlying demand is still subdued. For 2025 as a whole, headline CPI was flat, missing the government’s “around 2%” target and highlighting the limited impact of measures such as consumer goods trade-in programs.
The contrast is even sharper at the factory gate. Producer prices fell 1.9% year on year in December, extending China’s deflationary streak beyond three years despite a modest improvement from November. Durable consumer goods prices dropped 3.5%, reflecting persistent oversupply and cautious household spending. According to Macquarie economist Larry Hu, consumer inflation is likely to remain flat in 2025, while producer prices could fall another 2.7%—potentially the longest deflationary run on record.
Gold was a notable outlier. NBS chief statistician Dong Lijuan said gold jewelry prices surged 68.5% year on year in December, driven by global demand for safe havens amid recession fears and market volatility—an ironic contrast to weak spending elsewhere in the economy.
Growth indicators remain mixed. While China is expected to have met its roughly 5% GDP growth target last year, momentum appears to be cooling. Economists at Bank of America Global Research estimate real GDP growth slowed to about 4.5% in the fourth quarter from 4.8% in the third, as fixed-asset investment contracted further. Industrial production, by contrast, likely benefited from year-end manufacturing acceleration, helping lift the official PMI back above the 50 threshold in December for the first time in eight months.
The property sector continues to cast a long shadow. The Communist Party’s flagship Qiushi Journal has called for a more comprehensive rescue package, while economists expect further easing—from mortgage rate cuts to looser purchase restrictions. Yet Hu warns such steps may not be forceful enough, forecasting new home sales to fall again in 2026 after another decline in 2025.
For policymakers, the message from December’s data is clear: inflation may be flickering back to life, but deflationary forces still dominate. Until households feel secure enough to spend and the property crisis is decisively addressed, China’s economy will remain stuck between stimulus ambitions and structural headwinds—an imbalance global markets will continue to watch closely in 2026.
