MNI: China Core Inflation To Ease In 2026, Headline To Improve

China’s consumer price index is expected to rise modestly to around 0.6% y/y in 2026, after October’s 0.2% increase – the fastest pace since January and above the -0.1% average for the first 10 months – as improving pork prices support headline inflation, partly offset by a slowdown in core readings as gold-price momentum eases, local economists and analysts told MNI.

Rising gold prices have been a key driver behind the pickup in core CPI this year, which climbed 1.2% y/y in October, marking six consecutive months of expansion, said Tian Zengxu, China economist at the Economist Intelligence Unit in Beijing. 

“Although gold accounts for a relatively small share of the CPI basket, the scale of its gains has had a meaningful impact on the core reading,” Tian said, noting that domestic gold prices have risen 48% so far this year to CNY916 per gram as of Nov 9, while gold and platinum jewellery prices surged 50.3% and 46.1% in October.

Tian expects gold to continue supporting core CPI into 2026, underpinned by anticipation of U.S. Federal Reserve rate cuts that should sustain global demand. However, momentum is likely to moderate, with annualised core inflation easing to around 0.6% next year, in line with the headline rate, he added. The recent removal of value-added tax netting benefits for gold retailers could also slightly dampen purchases, he argued.

Additionally, authorities will find it difficult to sustain price growth for home appliances in 2026, Tian noted, following a 1.1% increase during the first 10 months of 2025, as the marginal impact of consumption subsidies fades. (See MNI: China To Maintain Modest Debt Expansion)

PORK PRICES

Food prices fell 2.9% y/y in October, a sharper drop than the -1.8% average recorded between January and September, mainly due to livestock oversupply, said Darin Friedrichs, co-founder of Shanghai-based agri-business consultancy Sitonia Consulting. Pork, a key component of China’s CPI basket, declined about 16% to CNY18.7 per kilogram, dragging down the overall index. “Oversupply in hog herds and weaker protein consumption growth have weighed on prices,” Friedrichs said, adding that higher beef supply following weaker than expected dairy demand had further deepened market imbalances.

In the near term, Friedrichs expects food prices to remain subdued amid sluggish consumer demand and continued overcapacity. Industry consolidation and the growing dominance of large producers in pork, beef and eggs have allowed firms to withstand downturns longer without cutting production, extending the period of price weakness, he said.

Falling global feed prices have also lowered production costs, intensifying the price decline, he added.

However, government efforts to curb overcapacity – particularly in the hog sector – should gradually stabilise the market, Friedrichs said, pointing to the National Development and Reform Commission’s September announcement that it plans to cut the number of fertile sows by 1 million by January 2026. “With these measures, we expect food price declines to narrow next year,” he said.