As the New Year holiday approached, China experienced a notable uptick in consumer inflation for December, reaching its highest rate in nearly three years. Despite this increase in consumer activity, the persistent deflation at the factory level highlighted ongoing weaknesses in underlying demand.

According to the National Bureau of Statistics, consumer prices climbed 0.8% compared to the previous year, marking the most significant rise since February 2023. This increase follows a 0.7% rise in November and aligns with predictions from economists surveyed by Reuters.

The surge in consumer prices was predominantly driven by a sharp increase in fresh vegetable costs, which soared 18.2% year-over-year, largely due to supply constraints during the cold winter months. In contrast, pork prices saw a significant decline of 14.6%.

Core inflation, which strips out the fluctuating costs of food and energy, held steady at a 1.2% increase year-over-year in December, consistent with the previous month’s figures.

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

Still, for 2025 as a whole, the inflation gauge was flat, missing the official target of “around 2%,” signaling that Beijing’s stimulus measures implemented so far, including a consumer goods trade-in program, have done little to boost demand.

Producer prices dipped 1.9% in December from a year earlier, better than the forecast 2% decline, extending the deflationary streak beyond three years. The drop moderated from a 2.2% fall in November, partly due to higher prices for non-ferrous metal materials.

Prices for durable consumer goods dropped 3.5% from a year earlier.

Lijuan Dong, chief NBS statistician, said that gold jewelry prices surged 68.5% year on year in December, driven by a global rush into the precious metal amid recession fears and market uncertainty.

While China is on track to achieve its growth target of about 5% last year, the economy has continued to face deflationary pressure. Consumers have remained reluctant to spend amid an uncertain employment outlook and a prolonged property crisis that has eroded household wealth.

Larry Hu, chief China economist at Macquarie, expects China’s annual consumer inflation to remain flat in 2025, while producer price deflation is forecast at 2.7%, which would mark the longest deflationary streak on record.

China’s real GDP growth will likely soften to 4.5% in the fourth quarter, down from 4.8% in the third quarter, said a team of economists at Bank of America Global Research.

The Wall Street bank said the contraction in fixed-asset investment likely deepened in December, dropping around 11.8% from a year earlier, compared with an 11.1% decline in November. Industrial production growth is estimated to have edged up to around 4.9%, supported by a pickup in manufacturing activity and the “usual year-end acceleration in output.”

China’s manufacturing activity unexpectedly expanded in December, snapping a record eight straight months of decline. The official purchasing managers’ index (PMI) rose to 50.1 from 49.2 in the prior month, above the 50-point threshold separating growth from contraction.

At a key economic policy-setting meeting in early December, the ruling Communist Party leadership reiterated plans to boost consumption and stabilize the property market, although similar pledges in the past have failed to deliver meaningful results.

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

The government may roll out more easing measures in the near term, including cutting mortgage rates and easing home purchase restrictions, said Macquarie’s Hu. However, these measures may not be “forceful enough to reverse the trend,” Hu warned, estimating new home sales in floor space to fall by 7% in 2026 after an 8% decline in 2025.

Chinese policymakers have also stepped up efforts to curb intense price wars that have hurt businesses’ profitability and ordered a production cut in some sectors to rein in oversupply.

Still, industrial firms saw their profits drop 13.1% year-on-year in November, their steepest drop in over a year.

Carmakers in the country have rolled out a new round of price cuts and perks at the start of this year as demands remained sluggish and the government withdrew part of a tax incentive for eligible electric vehicles.

Factory-gate prices in the automaking industry dropped 2.8% in 2025. In December, prices for gasoline-powered and new energy vehicles fell 2.4% and 2.2% from a year earlier, respectively, according to official data.