China’s inflation rate for December 2025 rose to 0.80% year-over-year (YoY), up from November’s 0.70% but slightly below the consensus estimate of 0.90%, according to the latest release from the Sigmanomics database. This marks the second consecutive month of positive inflation after a prolonged period of near-zero or negative inflation readings earlier in the year. The 12-month average inflation rate now stands at approximately 0.30%, reflecting a slow but steady recovery in price pressures.

Drivers This Month

• Food prices remained broadly stable, contributing 0.15 percentage points to overall inflation.
• Energy costs edged up by 1.20% MoM, adding 0.10 percentage points.
• Core inflation components excluding volatile food and energy held steady at 0.50% YoY.

Policy Pulse

The People’s Bank of China (PBOC) continues to maintain accommodative monetary policy, with benchmark lending rates unchanged. Inflation remains well below the official target of around 3%, allowing room for supportive measures to bolster growth without immediate pressure to tighten.

Market Lens

Financial markets reacted modestly to the print. The CNHCNY currency pair showed slight appreciation, reflecting confidence in China’s economic stability. Sovereign bond yields remained flat, while equity markets such as 000001.SZ saw minor gains on growth optimism.

Examining foundational macroeconomic indicators provides context for the inflation reading. Industrial production growth slowed to 4.20% YoY in December, down from 4.50% in November, signaling moderate demand pressures. Retail sales expanded 5.10% YoY, slightly below October’s 5.30%, indicating cautious consumer spending. The unemployment rate held steady at 5.20%, consistent with stable labor market conditions.

Monetary Policy & Financial Conditions

The PBOC’s steady policy stance supports liquidity and credit growth, with the M2 money supply growing 8.50% YoY in December, unchanged from November. Financial conditions remain accommodative, with the 1-year loan prime rate steady at 3.65%. Inflation below target allows the central bank to prioritize growth without immediate inflation concerns.

Fiscal Policy & Government Budget

Fiscal stimulus remains targeted, with government spending on infrastructure and social programs rising 6.80% YoY in December. The budget deficit widened slightly to 3.20% of GDP, reflecting ongoing efforts to support economic recovery amid global uncertainties.

What This Chart Tells Us

Market Lens

Immediate reaction: The BTCUSDT crypto pair showed mild volatility post-release, reflecting broader risk sentiment shifts. The 600519.SS stock, a bellwether in consumer sectors, edged higher, signaling investor confidence in stable inflation supporting consumption.

Looking ahead, inflation in China is expected to remain moderate but with potential for gradual acceleration. Three scenarios outline the range of possibilities:

Bullish Scenario (30% Probability)

• Stronger domestic demand and rising commodity prices push inflation above 1.50% YoY by mid-2026.
• Fiscal stimulus intensifies, boosting consumption and investment.
• Monetary policy remains accommodative but begins gradual tightening to preempt overheating.

Base Scenario (50% Probability)

• Inflation hovers between 0.80% and 1.20% YoY through 2026.
• Stable food and energy prices keep headline inflation contained.
• Monetary and fiscal policies remain supportive but cautious.

Bearish Scenario (20% Probability)

• External shocks, such as renewed geopolitical tensions or supply chain disruptions, depress demand.
• Inflation falls below 0.50% YoY, risking deflationary pressures.
• Policy stimulus ramps up to counteract weak price growth.

Risks and Opportunities

Upside risks include commodity price spikes and stronger-than-expected domestic consumption. Downside risks stem from global economic slowdown and geopolitical uncertainties, particularly in trade relations. The PBOC’s flexibility in policy will be critical in navigating these dynamics.

China’s December 2025 inflation rate of 0.80% YoY signals a cautious return of price pressures after months of subdued inflation. The data reflect a balanced macroeconomic environment where growth and inflation remain moderate. Policymakers have room to support the economy without immediate inflation concerns, but vigilance is warranted given external uncertainties. Financial markets have priced in this outlook, showing measured optimism. Structural trends, including urbanization and technological adoption, suggest inflation will remain contained but responsive to policy and global conditions.

Key Markets Likely to React to Inflation Rate YoY

Markets sensitive to China’s inflation data include domestic equities such as 000001.SZ, which track economic growth and consumer sentiment closely. The currency pair CNHCNY reacts to inflation-driven monetary policy shifts. Commodities and energy sectors influence inflation and are reflected in stocks like 600519.SS. Crypto markets, exemplified by BTCUSDT, often respond to inflation expectations and risk sentiment. Lastly, broader market sentiment is captured by indices such as 600519.SS.

FAQs

What does the December 2025 inflation rate indicate about China’s economy?

The 0.80% YoY inflation suggests moderate price pressures, indicating steady economic recovery without overheating.

How does this inflation reading affect monetary policy?

With inflation below target, the PBOC is likely to maintain accommodative policies to support growth.

What are the main risks to China’s inflation outlook?

Risks include external shocks, commodity price volatility, and geopolitical tensions impacting demand and supply.

Takeaway: China’s inflation is gradually rising but remains subdued, allowing policymakers to balance growth support with inflation control amid global uncertainties.