China’s Consumer Price Index (CPI) for October 2025 recorded a -0.30% month-on-month (MoM) decline, slightly better than the -0.40% drop in September but still below market expectations of -0.20%. This marks the fourth consecutive month of deflationary pressure, signaling persistent softness in domestic demand. Year-on-year (YoY) inflation remains subdued, reflecting ongoing structural challenges and external headwinds. The latest data from the Sigmanomics database highlights a cautious macroeconomic environment with mixed signals from monetary and fiscal policies.

Drivers this month

• Energy prices continued to moderate, contributing -0.12 percentage points (pp) to the CPI decline.
• Food prices fell by 0.50%, subtracting 0.08 pp, pressured by weak demand and seasonal factors.
• Core inflation excluding food and energy remained flat, indicating muted underlying price pressures.

Policy pulse

The CPI remains well below the People’s Bank of China’s (PBOC) implicit inflation target near 2%. This persistent deflationary trend supports the central bank’s cautious easing bias, with expectations for continued liquidity support and possible rate cuts to stimulate growth.

Market lens

Immediate reaction: The Chinese yuan (CNY) weakened 0.30% against the US dollar within the first hour post-release, while 2-year government bond yields fell by 5 basis points, reflecting increased expectations of monetary easing.

The October CPI reading of -0.30% MoM contrasts with a 0.40% rise in August and a -0.40% drop in September, underscoring volatility in price dynamics. Over the past 12 months, the average monthly CPI change has been -0.05%, indicating a mild but persistent deflationary environment. The Sigmanomics database confirms that this is the longest stretch of negative monthly CPI prints since early 2023.

Monetary policy & financial conditions

The PBOC has maintained a steady policy rate at 3.65% but signaled readiness to cut the Loan Prime Rate (LPR) if deflation deepens. Credit growth slowed to 9.20% YoY in September, down from 10.10% in July, reflecting cautious lending amid weak demand. Liquidity injections via open market operations have increased by 15% compared to Q2 2025.

Fiscal policy & government budget

Fiscal stimulus remains targeted, with a 3.50% increase in infrastructure spending year-to-date. However, local government debt concerns and slower tax revenue growth (-2.10% YoY) constrain broader fiscal expansion. The government aims to balance growth support with financial stability.

External shocks & geopolitical risks

Global commodity price volatility and ongoing trade tensions with key partners continue to weigh on import costs and export demand. The recent easing of US-China tariffs offers some relief but uncertainty persists, limiting upside inflationary pressures.

Comparing the current print with historical data, the CPI has shown a pattern of alternating mild inflation and deflation since early 2025. The last sustained inflationary period was in February 2025, when CPI rose 0.70% MoM. The recent deflationary trend is the longest since the 2023 slowdown, indicating structural demand weakness.

Market lens

Immediate reaction: The Shanghai Composite Index (red SHCOMP) dipped 0.60% post-release, reflecting investor concerns about slowing domestic consumption. Meanwhile, the USD/CNY pair rose 0.30%, consistent with expectations of further monetary easing.

Looking ahead, the CPI trajectory will hinge on several factors: domestic demand recovery, global commodity prices, and policy responses. The Sigmanomics database suggests three scenarios for the next quarter:

Bullish scenario (25% probability)

• Stronger consumer spending driven by easing COVID-19 restrictions and pent-up demand.
• Commodity prices stabilize or rise moderately, lifting input costs.
• Monetary and fiscal stimulus effectively boost growth, pushing CPI toward 1.50% YoY.

Base scenario (50% probability)

• Modest demand recovery offset by persistent global uncertainties.
• Energy prices remain subdued, keeping headline inflation near zero.
• Monetary policy remains accommodative but cautious, with CPI hovering around 0.50% YoY.

Bearish scenario (25% probability)

• Prolonged weak domestic demand and renewed external shocks.
• Deflation deepens, with CPI falling below -0.50% MoM.
• Monetary easing intensifies but fails to stimulate inflation, risking growth stagnation.

Policy pulse

The PBOC is expected to maintain a dovish stance, with potential LPR cuts in Q4 2025. Fiscal policy may increase infrastructure spending but remains constrained by debt concerns. The balance between stimulus and stability will be critical.

China’s October CPI print confirms ongoing deflationary pressures amid a fragile recovery. While the slight improvement from September is encouraging, the broader trend points to subdued inflation and weak demand. Policymakers face a delicate task balancing stimulus with financial risks. External uncertainties and structural shifts in consumption patterns add complexity to the outlook. Investors and analysts should monitor upcoming data releases closely, especially credit growth and fiscal measures, for clearer signals on the inflation trajectory.

Key Markets Likely to React to CPI

The CPI data is closely watched by markets sensitive to China’s economic health. The red SHCOMP index often moves in tandem with inflation surprises due to its exposure to domestic demand. The USD/CNY forex pair (USDCNY) reacts sharply to inflation data as it influences monetary policy expectations. The red BTCUSD crypto pair shows sensitivity to risk sentiment shifts triggered by economic data. Additionally, the red 600519.SS (Kweichow Moutai) stock is a bellwether for consumer confidence in China. Lastly, the red EURCNY pair reflects broader geopolitical and trade risk impacts on the yuan.

FAQ

What is the current trend in China’s CPI?

The CPI has shown persistent deflation with a -0.30% MoM decline in October 2025, marking the fourth consecutive month of negative prints.

How does CPI affect China’s monetary policy?

Low and negative inflation pressures encourage the PBOC to maintain or ease monetary policy to support growth and avoid deflation risks.

Why is CPI important for investors?

CPI data influences expectations for interest rates, currency strength, and equity market performance, making it a key indicator for investment decisions.

Key takeaway: China’s October CPI confirms ongoing deflationary pressures, signaling cautious monetary policy ahead and a fragile economic recovery.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.