Inflation in China at its highest point in years, what’s behind it?

Inflation in China rose to its highest point in almost three years in December. Although it seems positive news at first glance, domestic demand remains weak. That is a thorn in the side of Chinese policymakers, who have been trying to ward off deflation for some time.

Inflation is rising, but remains below target levels

Consumer prices in China rose 0.8 percent year on year in December. That is the highest level since February 2023. The increase is largely due to higher food prices, especially vegetables, which became scarcer due to winter cold. Core inflation, excluding volatile food and energy prices, again stood at 1.2 percent. Yet overall inflation is still far below the official target of “around two percent”.

Inflation was even zero percent for the whole of 2025, the lowest level since 2009. This means that China barely managed to avoid a period of deflation. While many Western countries struggled with sky-high price increases, China tried to do just the opposite: to avert a damaging price drop.

Weak consumption and housing crisis put pressure on prices

Despite the recovery in consumer prices, Chinese domestic demand remains fragile. The economy is struggling with a persistent real estate crisis, reluctant consumers and deteriorating sentiment on the labor market. Young people in particular have difficulty finding work, which affects confidence in the future.

At the same time, producer prices continue to decline. In December they were 1.9 percent lower than a year earlier. It is the 39th month in a row that producers can charge less money for their products. This continued price pressure shows that companies are still finding it difficult to get rid of their inventories.

ING: inflation possibly to 0.9 percent in 2026

According to ING economist Lynn Song, there is hope for a further increase in inflation in 2026. According to him, price pressure on pork, an important part of the Chinese diet, will decrease. As a result, inflation can rise to 0.9 percent. Although this is still below target, Song said it would be a healthy development after three years of extremely low inflation.

Beijing continues to focus on stimulus measures to boost the economy. For example, programs have been launched to encourage consumers to exchange old goods for new ones. So far the effect seems limited, but policymakers hope that structural reforms and targeted support measures will bear more fruit in 2026.