The latest official data from the Chinese Communist Party (CCP) shows that the Consumer Price Index (CPI) in December 2025 rose slightly compared to the same period last year, reaching its highest level since March 2023. However, the Producer Price Index (PPI) for industrial producers has been in negative growth for 40 consecutive months. Analysts believe that the moderate recovery in consumer demand is unable to reverse the long-term deflationary trend in the economy, indicating unresolved structural economic issues.
According to the National Bureau of Statistics of China, the Consumer Price Index (CPI) in December increased by 0.8% compared to the same month last year, marking the third consecutive month of increase and hitting the highest level since March 2023.
Dong Lijuan, a statistician at the National Bureau of Statistics, stated that the rise in prices of vegetables, beef, and other food items was the primary factor driving the monthly price increase, with pre-holiday consumer demand and certain consumption-promoting policies also playing a role.
However, when looking at the entire year of 2025, the Consumer Price Index in China fell significantly below the targeted “about 2%” level. After excluding food and energy prices, the core CPI rose by 1.2% year-on-year, remaining unchanged from the previous month, indicating that the recovery in consumer demand is not stable.
Regarding the short-term increase in CPI, Chinese researcher Wang He commented that it mainly resulted from fluctuations in food prices and does not adequately reflect the overall economic situation in China. He mentioned that amid weak income growth for Chinese residents, rising food prices only add to the pressure on living costs.
In a broader economic context, Wang He believes that China’s deflationary challenges are much more severe than what the CPI data indicates. He highlighted that China’s GDP deflator has been negative for 10 consecutive months, a situation unprecedented in available statistics.
“These data all point to one conclusion: China is currently deeply entrenched in a deflationary phase, and the slight growth in CPI is insufficient to reverse this trend,” Wang He emphasized.
While consumer prices have seen a modest uptick, the industrial sector continues to experience deflation. In December, the Producer Price Index (PPI) fell by 1.9% year-on-year, although the pace of decline narrowed compared to the previous month, it marked the 40th consecutive month of negative growth.
Economists surveyed by The Wall Street Journal had predicted a 2.0% decrease, with the index remaining in negative territory for over three years.
Looking at the whole year, PPI declined by 2.6%, indicating that the CCP’s efforts to curb overcapacity have not completely relieved the persistent deflationary pressures weighing on business profits.
Economists at Capital Economics expressed that the decline in prices of durable goods still outpaces levels seen during the peak of the global financial crisis, underscoring that oversupply issues in many manufacturing sectors remain unresolved.
The company stated in a research report on Friday, “Without stronger demand-side measures, we believe overcapacity and the resulting deflationary pressures will persist over the next few years.”
Regarding the continued negative growth reflected by PPI, Wang He also believes that this trend is unlikely to change in 2026. Comparing the current situation with a previous 54-month period of negative PPI growth, he noted that the economic and international environments China faces now are much more challenging.
Wang He analyzed that severe overcapacity, ongoing industrial investments, and massive trade surpluses have combined to create substantial structural challenges in the Chinese economy that are difficult to overcome.
“The key issue is that the Chinese authorities not only show no intention of changing this structure but continue to expand capacity in new quality production areas, further exacerbating the vicious cycle of internal competition and external low-price dumping.”
The direct consequence of this economic model is a continual deterioration in business profits. Wang He pointed out that industrial enterprise profits in China have seen continuous negative growth or decline for a long time, which in turn leads to a decrease in employee incomes. In such a scenario, even with an inflation rate of only 0.8%, it means increased financial burdens for the average Chinese citizen.
Economist Sarah Tan from Moody’s Analytics expects that “fragile consumer demand in China will persist throughout 2026.”
Wang He stressed the importance of examining the internal structure when analyzing China’s CPI data, particularly the changes in consumer goods prices closely related to people’s livelihoods. The real concern is not the surface changes in numbers but rather the economic imbalances and social challenges that these figures reflect.