China avoids deflation in 2025 as inflation edges higher, easing still likely

China has narrowly avoided deflation in 2025, with the Consumer Price Index (CPI) rising by 0.8% year-on-year in December, marking the strongest reading since February 2023. This brings the annual CPI inflation to 0.0%, allowing the country to sidestep annual deflation after several years of near-zero inflation. The increase is primarily driven by food prices, with a 1.1% year-on-year rise in December. The pork cycle is expected to turn this year, potentially adding upward pressure to food inflation. Non-food inflation remained unchanged at 0.8%, with household appliance prices rising sharply. However, housing-related costs continue to show deflationary trends. Core inflation stood steady at 1.2%, indicating limited underlying price momentum. At the producer level, there is a continued trend of deflation, although it is easing. Looking forward, analysts project CPI inflation of about 0.9% in 2026, which is low by international standards, but also foresee potential for further monetary easing, including a possible 10-basis-point rate cut in the first half of 2026.