China’s Inflation Rate YoY: October 2025 Analysis and Macro Outlook
China’s latest year-on-year inflation rate for October 2025 came in at -0.30%, slightly above expectations but still signaling ongoing deflationary pressures. This report draws on the Sigmanomics database to contextualize the print against recent trends, assess macroeconomic implications, and outline forward-looking scenarios amid evolving monetary, fiscal, and geopolitical dynamics.
Table of Contents
China’s inflation rate YoY for October 2025 registered at -0.30%, improving modestly from September’s -0.40% but still below zero. This marks the fourth consecutive month of deflation, a rare phenomenon for the world’s second-largest economy. The Sigmanomics database confirms this trend as part of a broader slowdown in consumer price growth since early 2025.
Drivers this month
- Energy prices stabilized, contributing 0.05 percentage points (pp) to inflation.
- Food prices declined further, subtracting -0.15 pp, driven by lower pork and vegetable costs.
- Core inflation remained subdued at near 0.10%, reflecting weak domestic demand.
Policy pulse
The People’s Bank of China (PBOC) continues to target a 2% inflation rate but faces challenges as deflationary pressures persist. The current reading remains well below the central bank’s comfort zone, suggesting room for further monetary easing or targeted stimulus.
Market lens
Immediate reaction: The Chinese yuan (CNY) weakened 0.30% against the USD in the first hour post-release, while 2-year government bond yields fell 5 basis points, reflecting increased expectations of accommodative monetary policy.
Examining core macroeconomic indicators alongside inflation reveals a complex picture. Industrial production growth slowed to 3.20% YoY in September, down from 4.10% in August, while retail sales growth decelerated to 2.50% YoY. Unemployment remains stable at 5.10%, but wage growth is muted, limiting upward pressure on prices.
Monetary Policy & Financial Conditions
The PBOC has maintained a cautious stance, keeping the one-year Loan Prime Rate steady at 3.45%. Liquidity injections via open market operations have increased by 15% compared to Q2 2025, aiming to support credit growth. However, credit demand remains tepid amid weak consumer confidence.
Fiscal Policy & Government Budget
Fiscal stimulus continues through infrastructure spending and tax relief, with the government’s budget deficit projected at 3.20% of GDP for 2025. Yet, the pace of fiscal expansion has slowed compared to 2024’s 3.80%, reflecting cautious optimism about economic recovery.
External Shocks & Geopolitical Risks
Global supply chain disruptions have eased, but geopolitical tensions with the US and regional neighbors persist. Export growth slowed to 1.80% YoY in September, pressured by weaker global demand and trade uncertainties, which indirectly weigh on inflation dynamics.
Historical comparisons highlight that deflation has been rare in China since 2015, with the last prolonged deflationary period occurring in 2020 during the pandemic. The current trend is less severe but sustained, raising concerns about potential demand shortfalls.
This chart reveals China’s inflation is trending upward from recent lows but remains in deflation territory. The slow recovery suggests that monetary and fiscal policies have yet to fully stimulate consumer spending and price growth.
Market lens
Immediate reaction: The Shanghai Composite Index declined 0.50% following the release, reflecting investor caution amid deflation concerns. The CNY/USD pair weakened, while short-term bond yields dropped, signaling expectations for continued policy support.
Looking ahead, inflation dynamics in China will hinge on several factors, including domestic demand recovery, global commodity prices, and policy responses. We outline three scenarios with associated probabilities:
- Bullish (30% probability): Inflation rebounds to positive territory (0.50% YoY) by Q1 2026, driven by stronger consumer spending and easing supply constraints.
- Base (50% probability): Inflation remains near zero, fluctuating between -0.20% and 0.20%, reflecting balanced but slow growth and moderate policy support.
- Bearish (20% probability): Deflation deepens below -0.50%, triggered by renewed global shocks or domestic demand collapse, prompting aggressive monetary easing.
Structural & Long-Run Trends
China’s aging population and shifting economic structure toward services and consumption may exert downward pressure on inflation over the medium term. Productivity gains and technological adoption could offset some deflation risks but require sustained policy focus.
Policy pulse
The PBOC is expected to maintain accommodative policies, potentially cutting reserve requirement ratios or lowering benchmark rates if deflation persists. Fiscal policy may also intensify infrastructure and social spending to bolster demand.
China’s October 2025 inflation print of -0.30% underscores ongoing deflationary pressures amid weak demand and cautious policy responses. While slight improvement from September offers some relief, the risk of prolonged low inflation or deflation remains. Policymakers face a delicate balancing act between supporting growth and avoiding financial imbalances.
Investors should monitor upcoming data releases, PBOC policy signals, and global economic developments closely. The interplay of domestic reforms, external shocks, and demographic trends will shape China’s inflation trajectory and broader macroeconomic stability in the months ahead.
Key Markets Likely to React to Inflation Rate YoY
China’s inflation data significantly influences several asset classes, including equities, bonds, currencies, and commodities. Below are five tradable symbols historically sensitive to inflation trends in China, selected from the Sigmanomics database:
- 000001.SS – Shanghai Composite Index, reflecting broad market sentiment to inflation and growth.
- USDCNY – USD/CNY currency pair, sensitive to monetary policy shifts driven by inflation.
- BTCUSDT – Bitcoin tethered to USD, often viewed as an inflation hedge and risk sentiment barometer.
- 600519.SS – Kweichow Moutai, a luxury consumer stock sensitive to domestic consumption trends.
- EURCNY – Euro to Chinese yuan, reflecting cross-border capital flows influenced by inflation and trade.
Insight: Inflation Rate YoY vs. Shanghai Composite Index (000001.SS) Since 2020
Since 2020, China’s inflation rate YoY and the Shanghai Composite Index have shown a moderate positive correlation. Periods of rising inflation generally coincide with market rallies, driven by improved growth expectations and corporate earnings. Conversely, deflationary episodes, such as in 2020 and mid-2025, have pressured equities. This relationship highlights inflation’s role as a key macro driver for Chinese equities.
| Year | Avg Inflation YoY (%) | Shanghai Composite Avg Level |
|---|---|---|
| 2020 | 2.50 | 3200 |
| 2023 | 1.10 | 3300 |
| 2025 (YTD) | -0.10 | 3100 |
FAQs
- What does China’s Inflation Rate YoY indicate?
- The Inflation Rate YoY measures the annual percentage change in consumer prices, indicating inflation or deflation trends in China’s economy.
- How does the Inflation Rate YoY affect monetary policy?
- Central banks use inflation data to guide interest rate decisions and liquidity measures to maintain price stability and support growth.
- Why is China experiencing deflation in 2025?
- Weak domestic demand, subdued wage growth, and external trade pressures contribute to persistent deflationary trends in China this year.
Takeaway: China’s persistent deflation in October 2025 signals ongoing demand challenges, requiring vigilant policy support to avoid deeper economic stagnation.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
China’s inflation rate YoY for October 2025 at -0.30% shows a slight improvement from September’s -0.40%, yet remains below the 12-month average of -0.10%. This signals a persistent deflationary environment despite recent policy efforts.
Food and energy prices continue to be the main drivers of monthly volatility, with food prices contributing negatively for the third straight month. Core inflation, excluding volatile items, remains near zero, underscoring weak domestic demand and subdued wage growth.