Annual inflation in consumer prices of China gained momentum to a 34-month high in December, yet the overall rate fell to the lowest in 16 years as producer deflation remained, reinforcing the market forecasts of further stimulus to support weak demand.

The disproportions within the $19 trillion economy have only increased in the last year at a time when the economy is bound to achieve the target of 5% growth by Beijing by 2025, supported by policy help and strong exports of its goods.

The international trade war by the U.S. President Donald Trump has contributed to the already weak consumer demand, which has continued to weigh on confidence and growth over the years in the face of a long-term property crisis.

The December consumer price index (CPI) increased 0.8 per cent in December compared to the same month the year before, National Bureau of Statistics (NBS) data revealed on Friday, just as expected in a poll by Reuters and exceeding the 0.7 per cent increase in December.

“Food prices, particularly fresh vegetables and beef, were the main cause of the increase of 18.2 percent and 6.9 percent, respectively,” Dong Lijuan, a statistician at NBS, said in a statement. Dong also added that it boosted consumer prices because of pre-New Year holiday shopping and supportive policies.

Chinese policymakers have vowed on several occasions to aid a rebound in prices and monetary policy and have harshly addressed overcompetition. They have also promised to increase the income of the people to unleash the consumption potential and bring about a better match between supply and demand in the country.

However, the desire to demand in the economy is low.

Even though there has been an expectation of a recovery, inflation has been relatively low, and it should not eliminate more monetary easing this year, according to Lynn Song, the chief economist of Greater China at ING.

Capital Economics China economist Zichun Huang said that the high headline CPI was not caused by the government’s drive to restrain so-called “inflation” and that overcapacity and deflationary forces would continue to dominate over the next few years without more decisive steps on the demand side.

WHERE HAS INFLATION GONE?

In fact, consumer price inflation has registered zero in the whole of 2025, way below the desired 2 percent mark that the policymakers were targeting, and this indicates that the stimulus measures, including a consumer goods trade-in program, are not producing any significant impact in improving sentiment and taming deflationary pressure.

The prices of pork dropped by 14.6 percent per year in December compared to the previous year, and prices of gold jewellery shot up by 68.5 percent, NBS data revealed.

The inflation, which has been under 1.2% in the past year, increased by the same figure over the same period in February, excluding volatile food and fuel prices.

Economists at Goldman Sachs estimate that the core price gauge excluding gold prices was slightly lower in December than it was the previous month.

The Chinese consumer prices have been growing annually, to no avail, as the economy is trying to cope with the pandemic.

The long-term property market crisis and poor job market have also contributed to the poor household demand, excess capacity, and price competition among producers.

Monthly, CPI increased by 0.2 percent in December, or a notch lower than the 0.1 percent decline the prior month and an expectation of a 0.1 percent increase.

In December, the producer price index (PPI) decreased 1.9 per cent on an annual basis in its three-plus-year deflationary rut despite improving on a 2.2 per cent decline in November. There was an anticipation that the gauge would have decreased by 2 percent in the Reuters poll.

Dong of NBS explained the moderation of the factory-gate deflation by global factors such as the rising prices of non-ferrous metals, as well as policies to regulate the capacity in major industries.

Huang of Capital Economics said, however, that there has been no “fundamental overcapacity improvement.”

She said, “It is true since the price of consumer durables was falling at an even greater rate than the one experienced in the depths of the global financial crisis, and that the problem of excess supply is still there in much of the manufacturing industry.”

For the whole year, PPI fell 2.6%.

Since the economic momentum slowed down in the second half of 2020, the market is looking forward to other government support measures in 2026 as top leaders of the company pledged to engage in a more active macroeconomic policy framework.

In 2026, the central government will continue to fund the consumer goods trade-in scheme through the allocation of 62.5 billion yuan (8.95 billion) of the funds of special treasury bonds to the local governments.

The government has also made the commitment to use monetary policy instruments flexibly, including reducing interest rates and the reserve requirement ratio by the banks, to ensure that liquidity is not a constraint and that it stimulates growth.