In 2025, price levels showed a pattern of moderate recovery from low levels. Prices in the consumption sector remained generally stable, the increase in core CPI widened, and prices in the production sector began to recover from their lows. However, low inflation remains a significant concern in the current operation of the Chinese economy. The Central Economic Work Conference held in December 2025, when outlining economic tasks for 2026, emphasized that "promoting stable economic growth and a reasonable rebound in prices should be key considerations for monetary policy." As the inaugural year of the 15th Five-Year Plan period, what trends can be expected for prices in 2026? What positive signals are currently visible? How should policies be directed?
Reviewing 2025: A Moderate Recovery in Prices from Low Levels Data from the National Bureau of Statistics shows that for the full year of 2025, the national Consumer Price Index (CPI) was flat compared to the previous year, while the Industrial Producer Price Index (PPI) fell by 2.6%. Wang Youjuan, Director of the Department of Urban Socio-Economic Survey of the National Bureau of Statistics, stated that in 2025, all regions and departments deeply implemented more proactive and effective macro policies and advanced the construction of a unified national market. This resulted in generally stable prices in the consumption sector, a widening increase in core CPI, and a low-level recovery in production sector prices.
Specifically, in the consumption sector, the CPI was flat year-on-year for the full year, showing a fluctuating monthly recovery. Significant declines in food and energy prices were the main factors pulling down the CPI. Wang Youjuan pointed out that food prices remained low, falling 1.5% for the full year of 2025, with the decline widening by 0.9 percentage points compared to the previous year. This impacted the CPI by approximately -0.27 percentage points. Among these, continued increases in hog supply led pork prices to fall by 6.1%, reversing from a 7.7% increase the previous year, impacting the CPI by about -0.08 percentage points. The decline in energy prices widened, falling 3.3% for the full year, with the rate of decline expanding by 3.2 percentage points year-on-year, impacting the CPI by about -0.25 percentage points. Influenced by the volatile downturn in international crude oil prices, domestic gasoline and diesel prices fell by 7.2% and 7.8% respectively, with the declines widening by 6.5 and 7.0 percentage points compared to the previous year.
The core CPI, which excludes the more volatile food and energy prices, showed a sustained month-on-month year-on-year recovery starting from March 2025. From September to December, the year-on-year increase remained above 1% for four consecutive months. For the full year of 2025, core CPI rose by 0.7%, with the increase widening by 0.2 percentage points from the previous year, reflecting some improvement in market supply and demand relations.
In the production sector, prices generally showed a recovery from low levels in 2025. The full-year PPI fell by 2.6% year-on-year, with the rate of decline narrowing by 0.2 percentage points compared to both the first half and the first three quarters. The year-on-year decline in PPI showed a narrowing trend in the second half of the year. Wang Youjuan stated that since August, with the deepened advancement of the unified national market construction and the rapid development of emerging industries, the month-on-month PPI stopped falling and began to rise for three consecutive months starting in October. The year-on-year decline narrowed to 1.9% by December, the smallest decline since September 2024.
Wang Youjuan highlighted three factors: First, the optimization of domestic market competition秩序 drove price recoveries from low levels in some industries. Second, external factors caused divergent price trends in related domestic industries. On one hand, rising international non-ferrous metal prices in 2025, combined with the accelerated progress of domestic electrification and green low-carbon transition, led to sustained price increases in non-ferrous metal-related industries. On the other hand, the overall volatile decline in international crude oil prices drove down prices in domestic petroleum-related industries. Additionally, uncertainties in the international trade environment affected corporate export expectations, leading to price declines in the textile industry, general equipment manufacturing, and special equipment manufacturing. Third, high-quality industrial development and transformation and upgrading drove price increases in some sectors.
However, low inflation remains a key issue to be addressed in the Chinese economy. Luo Zhiheng, Chief Economist and Dean of the Research Institute at Yuekai Securities, pointed out that low inflation adversely impacts corporate revenue and profits, household income, government tax revenue, and fiscal capacity, leading to a divergence between macro data and micro-level perceptions. He emphasized the necessity of more vigorous efforts to promote a reasonable rebound in prices.
Price Outlook for 2026 Looking at price trends for the current year, can the recovery trends in CPI and PPI continue? Can PPI turn positive, and if so, when? The macro team at Caixin Research Institute believes that from a macro perspective, four leading indicators—the converging supply-demand gap, the bottoming out and recovery of M1 growth, the bottoming and improvement in resident employment, and the potential upward turn in the capacity cycle—collectively lay the foundation for price recovery. From the perspective of price composition, the "carryover effect" for both CPI and PPI in 2026 will be significantly higher than in the previous year. Furthermore, as the inaugural year of the "15th Five-Year Plan" period, policies aimed at expanding domestic demand and supply-side "anti-involution" policies are expected to form a synergistic force, jointly supporting "new price increase factors" and promoting a moderate price rebound. Therefore, the trend of price recovery in 2026 is clear.
CICC Macro believes that macro policies in 2026 will involve moderate aggregate strengthening and a parallel approach of "increasing and decreasing" in structure—reducing inefficient supply and enhancing effective demand—which will help promote a reasonable rebound in prices. As the base effect for food prices turns from negative to positive, coupled with the timing effect of the Spring Festival, the year-on-year CPI is expected to reach a阶段性高点 in February, after which it may slow down alongside a moderation in core inflation. With "anti-involution" policies advancing moderately and a base effect that is low in the first half and high in the second half, the year-on-year PPI may improve in the first half of the year and soften in the second half.
Caitong Macro anticipates continued pressure on hog prices in the first half of this year. Firstly, it takes time for policies aimed at reducing production capacity to take effect. Secondly, industry-driven capacity reduction due to losses is also unlikely to show immediate results. Against the backdrop of supply-demand imbalances, oil prices may continue to be suppressed. The year-on-year core CPI may struggle to maintain a unilateral upward trend. Caitong Macro further indicated that policies may support an improvement in core CPI prices, but the fundamental factor for a sustained recovery lies in household income and employment. Currently, the core CPI has seen some repair, supported by factors such as a low base effect, rising international gold prices as an imported influence, and commodity subsidy policies. However, as the effects of external imported factors and internal policy measures are expected to weaken, the year-on-year core CPI in 2026 may find it difficult to maintain a unilateral increase.
Wen Bin, Chief Economist at China Minsheng Bank, believes that in 2026, more proactive and effective macro policies will provide a better policy environment for economic growth and a reasonable rebound in prices. The CPI is expected to rise steadily, with a forecasted full-year increase of around 0.8%. Regarding PPI, the macro team at Caixin Research Institute predicts that PPI will achieve a positive year-on-year turn around the second quarter of 2026. However, the recovery process will exhibit distinct structural characteristics: First, the driving force will be concentrated upstream, with high price-elasticity industries like the "three blacks and one color" (coal, ferrous metals, and non-ferrous metals) leading and dominating the pace of recovery. Second, the transmission effect depends on demand; whether prices can smoothly pass through to midstream and downstream sectors will determine the magnitude and sustainability of the recovery, fundamentally hinging on the recovery strength of terminal demand such as real estate and consumption. Third, the effectiveness of policies needs to be anchored by demand; "anti-involution" policies provide initial momentum, but their future success highly depends on effective support from the demand side.
"Current macro policies are being front-loaded, which helps boost domestic demand and promote price recovery," said Luo Zhiheng, Chief Economist and Dean of the Research Institute at Yuekai Securities. On the fiscal policy front, initiatives like consumer goods trade-in programs, construction in "two key areas" and the early allocation of some central budget investment funds aim to stimulate consumption and expand investment. On the monetary policy side, measures include lowering interest rates on structural monetary policy tools, improving these tools, and optimizing credit policies for commercial properties, providing strong support for the real economy.
However, Luo Zhiheng also pointed out that in the medium to long term, a reasonable rebound in prices depends on the effective improvement of supply-demand imbalances. He proposed several measures: First, establish a long-term mechanism for wage growth, explore setting up a "Special Guidance Fund for Increasing Urban and Rural Residents' Incomes" to encourage enterprises to raise salaries, appropriately improve the待遇 of grassroots public officials, and implement a plan to narrow the pension gap for urban and rural residents, focusing on increasing the income of low-income groups such as farmers. Second, encourage the corporate sector to transfer benefits to the household sector, increase the proportion of state capital profits turned over to the state to replenish social security funds, while encouraging listed companies to pay dividends and implement equity incentive plans to increase residents' property income. Third, optimize the redistribution mechanism, keep the individual income tax exemption threshold stable, focus on optimizing the special additional deduction system, and gradually shift towards a comprehensive income tax collection model. Fourth, increase fiscal expenditure on "investing in people" to promote the equalization of basic public services. Fifth, continue to advance "anti-involution" efforts to restore related industries to orderly competition and a virtuous cycle.