^{People walk along the Huguosi street, Xicheng district, a dedicated food street in Beijing on August 23, 2024.}

^{Adek Berry | AFP | Getty Images}

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China posted its strongest consumer inflation reading in almost two years in November, even as the country’s industrial sector remained mired in deeper-than-expected producer price deflation. The latest figures highlight the complexity policymakers face as they attempt to revive domestic demand while navigating global trade headwinds and ongoing structural weaknesses at home.

New data from the National Bureau of Statistics showed that the Consumer Price Index rose 0.7 percent year-on-year, the fastest pace since February of the previous year and a sharp increase from the 0.2 percent rise seen in October. The reading matched expectations from economists surveyed by Reuters. Producer prices, however, fell by 2.2 percent compared with a year earlier, undershooting forecasts of a 2 percent decline and extending the deflationary trend that has gripped factory-gate prices for nearly four years. This followed a 2.1 percent contraction in October.

Core inflation, which excludes food and energy, climbed 1.2 percent year-on-year, consistent with October’s movement. The rise in consumer prices was driven primarily by a recovery in food inflation. Food prices increased 0.2 percent from the previous year, reversing the 2.9 percent decline recorded in October. Energy prices, meanwhile, dropped 3.4 percent, falling more steeply than the previous month.

Beijing’s consumption-focused policy interventions are also influencing price patterns across consumer categories. Home appliance prices jumped 4.9 percent and clothing prices rose 2 percent, reflecting stimulus-driven household demand. Vehicle prices moved in the opposite direction, with gasoline-powered cars and new-energy vehicles down 2.5 percent and 2.4 percent, respectively. Gold accessories surged an extraordinary 58.4 percent year-on-year amid global safe-haven demand.

Despite the upward shift in consumer prices, economists caution that broader deflationary pressure remains entrenched. Analysts at Goldman Sachs noted that much of the headline CPI improvement came from higher vegetable prices due to supply disruptions caused by adverse weather. The bank also emphasized that core inflation—when excluding the exceptional rise in gold—likely weakened slightly between October and November.

Month-on-month consumer prices fell 0.1 percent, underperforming expectations for a 0.2 percent gain. Prices for hotels, flights, travel agencies and broader transportation services dropped as seasonal travel activity eased after October’s extended holiday period.

In the industrial sector, price pressures remained severe. Coal mining and washing industry prices fell 11.8 percent year-on-year, while oil and gas extraction prices declined 10.3 percent. These sharp declines underscore structural weaknesses linked to oversupply and subdued downstream demand. Analysts highlight that manufacturers continue to discount aggressively to clear inventory, reflecting an economy still struggling to regain momentum.

China’s post-pandemic recovery has been hampered by a prolonged property downturn, job market fragility and weak household confidence. Industrial overcapacity in several strategic sectors has also contributed to persistent price cuts. Zavier Wong, a market analyst at eToro, emphasized that manufacturers are still reducing prices to move excess supply, and this persistent pattern shows how weak domestic demand remains. He noted that until broader demand strengthens, headline improvements will continue to mask deeper imbalances.

Although third-quarter GDP growth slowed to its weakest pace in a year, China remains on track to meet its full-year growth target of around 5 percent. Strong export performance has played a critical role. In the first eleven months of the year, China recorded more than one trillion dollars in trade surplus, surpassing the record set in 2024. Shipments to non-U.S. markets have increased as companies seek to diversify trade relationships in response to global protectionism and geopolitical tensions.

Earlier this month, the Politburo identified expanding domestic demand and rebalancing supply structures as top priorities for 2026. Economists at Goldman Sachs believe that while policymakers are maintaining an easing stance, they appear less willing to deploy sweeping stimulus. However, pressures tied to the property sector and labor market may force Beijing to intensify pro-growth policy measures in the coming year.

Investors are now focused on the annual Central Economic Work Conference, which will set growth objectives and policy guidance for the year ahead. Although official targets will not be released until the National People’s Congress convenes in March, markets expect policymakers to signal a stronger push to stabilize consumption, support employment and address persistent deflationary risks.