CPI points to stabilization of economy

China's consumer inflation accelerated to its fastest pace in nearly three years in December, official data showed on Friday, signaling a stabilizing economy as recent stimulus measures continued to bolster domestic demand.

Going forward, analysts said consumer inflation is expected to remain mild through 2026, leaving ample room for policymakers to step up macroeconomic adjustment to counter mounting uncertainties. Policy options include targeted measures to boost domestic demand and support innovation, as well as further cuts to the reserve requirement ratio and interest rates.

The country's consumer price index, the main gauge of inflation, rose by 0.8 percent year-on-year in December, following a 0.7 percent rise in November, marking the highest level since February 2023, the National Bureau of Statistics said on Friday.

"China's latest consumer inflation data points to a continued strengthening in domestic demand, mainly driven by the impact of consumption-boosting policies and the release of demand ahead of the New Year holiday," said Tang Guanghua, an analyst at Shenyin & Wanguo Futures Co. "Meanwhile, the core CPI remained above 1 percent for four consecutive months in December, highlighting a steady improvement in consumption fundamentals."

The improving inflation data has reflected the growing momentum of the Chinese economy, with the World Bank, the International Monetary Fund and the Asian Development Bank having raised their growth forecasts for China's economy.

The IMF forecasts a 5 percent GDP expansion in 2025 and 4.5 percent for 2026, while Goldman Sachs said this week that it expects China's GDP to grow 4.8 percent in real terms in 2026, supported by a policy-backed investment rebound, the potential of service consumption, resilient export growth and a milder drag of the property sector.

With economic momentum showing signs of improving, Chinese stocks moved higher on Friday, with the Shanghai Composite Index posting a solid gain of 0.92 percent to close at 4,120.43 points, topping the psychologically important 4,100 points to reach a decade high. Since the beginning of the year, the index has risen by 3.82 percent, indicating a continuous improvement in investor confidence.

NBS data showed the core CPI, which excludes volatile food and energy prices and is deemed a better gauge of supply-demand conditions, rose 1.2 percent year-on-year in December, unchanged from November.

Meanwhile, China's producer price index — which measures factory-gate prices — fell by 1.9 percent year-on-year in December, narrowing from a 2.2 percent drop in November, the NBS said.

Tang from Shenyin & Wanguo Futures Co said the narrowing decline in factory-gate prices showed strengthening recovery momentum, signaling both improving industrial fundamentals and deeper structural optimization.

He expects consumer prices to rise steadily on the back of continued consumption recovery and policy support, while PPI recovery momentum is set to strengthen further given the progress in building a unified national market, industrial restructuring and rising demand from emerging industries as key drivers, particularly for high-end manufacturing.

As the NBS is set to release the economic indicators for December and the fourth quarter later this month, Li Chao, chief economist at Zheshang Securities, said China's economic growth is expected to have remained resilient toward the end of 2025, fueled by relatively strong production and a gradual recovery in demand.

He said that economic activity likely picked up in December, with both domestic and external demand gradually improving and companies pushing to meet year-end targets. "That will help support China to achieve its full-year growth target of around 5 percent in 2025, while laying the groundwork for a strong start in 2026."

During the recently held 2026 work conference of the People's Bank of China, the country's central bank said it will continue to implement an appropriately accommodative monetary policy in 2026, underscoring its commitment to supporting high-quality economic development and promoting a reasonable rebound in prices.

Li from Zheshang Securities said his team expects a 50 basis-point cut in the RRR and a 10 basis-point reduction in policy interest rates over the year.

Li added that structural policy tools are expected to continue to play a key role, alongside stronger credit guidance to channel funding toward priority areas.

Expanding domestic demand, advancing technological innovation and supporting micro, small and medium-sized enterprises are likely to remain the main focus of policy support in 2026, he said.

Contact the writers at ouyangshijia@chinadaily.com.cn