JPMorgan EM Asia Economics: China December Inflation Slightly Above Expectations, Rising Inventories Prolong Deflation
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China's December inflation data came in slightly above expectations, with the Consumer Price Index rising 0.8% year-over-year and the Producer Price Index narrowing its decline to negative 1.9%. Food prices and gold jewelry supported CPI, while energy and rental costs remained weak. The PPI improvement was driven by easing price declines in specific sectors, seasonal winter utility demand, and a spillover from global non-ferrous metal prices. For the full year of 2025, average CPI was flat at 0.0%, while PPI averaged negative 2.6%.
JPMorgan projects a moderate recovery in consumer demand for 2026, forecasting CPI at 0.7% and core CPI at 1.0%. However, the PPI forecast has been revised down by 0.2 percentage points to negative 1.5%. Rising inventories and persistent softness in demand are expected to prolong the deflationary environment. Consequently, the bank maintains its 2026 nominal GDP forecast at 4.2% while revising the real GDP forecast upward to 4.5%.
The first tranche of funding for the 2026 trade-in subsidy program stands at 62.5 billion yuan, marking a decrease from previous periods and suggesting a more modest immediate boost. JPMorgan's commodities strategy team forecasts that gold prices will surge nearly 40%, while Brent crude will decline 15%. Venezuela's regime change points to potential upside in global oil supply over the medium to long term, exerting further downward pressure on prices.