China's Inflation Hits 13-Month High

The surge in consumer prices was significantly influenced by the timing of the Lunar New Year holiday, which fell entirely in February this year, unlike in 2025 when it was split across January and February. This led to a concentrated burst of holiday-related spending. Travel and services saw some of the steepest price hikes, with flight tickets, transportation rentals, and travel agency fees all posting double-digit increases. In the service sector, prices for pet services and vehicle maintenance also jumped by 13% and 12% respectively. Food prices reversed a previous decline, rising 1.7% year-over-year, driven by higher costs for fresh vegetables, beef, and lamb. Core inflation, which strips out volatile food and energy prices, showed a solid increase of 1.8% from the previous year. The milder-than-expected drop in producer prices marks the 17th straight month of factory-gate deflation, a trend fueled by a prolonged slump in the property market and weak consumer demand. The ongoing property crisis remains a major drag on the economy, with sales of new properties in the first 11 months of 2025 down 11.1% year-on-year. In response to persistent economic headwinds, Beijing has set a GDP growth target of 4.5% to 5% for 2026. Top leaders have also issued their strongest pledge to date to end deflationary pressures within the year. To stimulate demand, the government plans to issue 250 billion yuan in special treasury bonds. These funds will support programs that subsidize households for trading in old appliances and vehicles for new ones. Despite these efforts, consumer confidence remains fragile, reflected in a personal savings rate that has stayed above 30% since 2020. Total retail sales grew modestly in 2025 but showed signs of weakening toward the end of the year.