In November, China’s consumer inflation reached its highest point in almost two years, while deflation in producer prices worsened, highlighting the hurdles policymakers face in boosting domestic demand amid ongoing trade disputes.

According to the National Bureau of Statistics, consumer prices saw a 0.7% increase from the previous year, marking the highest rise since February of the preceding year. This growth followed a 0.2% increase in October and aligned with the expectations of a 0.7% rise predicted by economists in a Reuters survey.

Meanwhile, factory-gate prices dropped by 2.2% in November year-over-year, primarily due to a higher comparison base. This decline, which extended the deflationary period into its fourth year, missed the anticipated 2% decrease and followed a 2.1% reduction in October.

Core inflation, which strips out the fluctuating prices of food and energy, increased by 1.2% in November compared to the previous year, maintaining the same rise as seen in the prior month.

Dong Lijuan, chief statistician at NBS, attributed the improvement in CPI to higher food prices, which grew 0.2% from a year earlier, reversing a 2.9% drop in October. Energy prices slid 3.4% from a year earlier, a sharper decline than the previous month.

Beijing’s consumption-focused stimulus measures continued to lift prices for home appliances and clothes, which rose 4.9% and 2%, respectively. Prices for gasoline-powered and new-energy vehicles fell by 2.5% and 2.4%, respectively. Gold accessories prices rose 58.4% from a year earlier.

Despite the pickup in consumer prices, economists warned that deflationary pressure remains entrenched in China’s economy.

The headline CPI was largely supported by higher prices of fresh vegetables amid a supply shortage due to adverse weather, according to Goldman Sachs, while the core inflation figure was helped by the surging gold prices.

The Wall Street bank estimates that core CPI inflation, excluding gold prices, “edged down modestly” from October to November.

On a monthly basis, CPI slipped 0.1%, below the anticipated 0.2% gain in a Reuters poll, as prices for hotels, flights, transportation, and travel agencies cooled after the extended holiday period in October.

Among the categories that posted the sharpest drops in factory-gate prices, the coal mining and washing industry saw prices fall 11.8% from a year ago, while the oil and gas extraction sector recorded a 10.3% decline.

China has struggled to shake off the deflationary pressure since the end of the pandemic, as a protracted housing downturn and weak labour market conditions continue to weigh on household spending.

Excess production in several sectors has also led to oversupply, forcing firms to cut prices to stay competitive.

“Manufacturers are still cutting prices to shift excess supply, and that persistent decline highlights how weak demand conditions remain,” said Zavier Wong, a market analyst at stock trading platform eToro.  

“Until demand strengthens more broadly and price pressures become more balanced, China’s recovery will continue to feel uneven, even if the headline numbers appear to be improving,” Wong added.

While economic growth slowed to its weakest pace in a year in the third quarter, China appears to be on track to reach its annual growth target of “around 5%” this year, supported by the resilient exports as manufacturers ramped up shipments to non-U.S. markets.

China recorded more than $1 trillion in trade surplus in the first 11 months of the year, topping the full-year record set in 2024, as the country navigated ongoing trade tensions and growing economic protectionism worldwide.

In a key meeting earlier this month, the Politburo, top decision-making body of the ruling Communist Party, named expanding domestic demand and rebalancing supplies among the top economic priorities for 2026.

“Although policymakers maintained their easing bias, they appeared less inclined towards broad-based stimulus measures,” said Lisheng Wang, China economist at Goldman Sachs, noting that policymakers may need to strengthen their easing rhetoric again and step up pro-growth policy efforts next year to offset the drag from the property sector and labour market.

Investors and economists are watching closely the annual Central Economic Work Conference expected in the coming days, where policymakers will set key growth targets and policy priorities for next year. The official figures will not be made public until the annual parliamentary meeting in March.