Editor's note: Lin G. is a CGTN economic commentator. The views expressed in this article are the author's own and do not necessarily reflect those of CGTN.

China's consumer price index (CPI) rose by 0.8 percent year on year in December, the strongest reading since March 2023. Released on Friday, the figure may appear modest in isolation, but its timing and composition give it far greater meaning.

Against a global backdrop of inflation concerns in the United States and Europe, China's price movement tells a different story. The issue is not speed, but direction: After a prolonged phase of restrained price dynamics, signals of normalization are beginning to emerge within the domestic economy.

What the inflation data actually say and why structure matters more than headlines

The most important insight from China's December CPI does not lie in the headline number itself, but in the way the data unfold once examined by time horizon.

From a year-on-year perspective, the picture is already distinct. In December, CPI rose by 0.8 percent, the third consecutive month of year-on-year expansion. This marks a clear contrast with the first nine months of 2025, during which CPI recorded annual growth in only two months.

More importantly, the composition of this year-on-year increase points in a specific direction.

Energy prices exerted downward pressure. Gasoline prices fell by 8.4 percent from a year earlier, while overall energy prices declined by 3.8 percent. In other words, the acceleration in CPI did not come from externally driven price swings, nor from volatile energy inputs.

Even so, headline CPI moved higher.

When food and energy were excluded, the core CPI rose by 1.2 percent year on year, remaining above the 1 percent threshold for a fourth consecutive month. This is where the signal begins to take shape.

The month-on-month data reinforce this impression. In December, CPI rose by 0.2 percent from the previous month. This increase again occurred against a backdrop of declining energy prices: Domestic gasoline prices fell 1.2 percent monthly, tracking softer international oil markets.

The upward movement instead came from non-energy industrial consumer goods. Prices of durable items, including household appliances, furniture, and communication equipment, recorded month-on-month increases ranging from 1.4 percent to 3 percent.

These categories matter because they are the most sensitive to expectations. Food and energy consumption cannot be postponed indefinitely. Durable goods can. When households expect prices to remain flat or fall, purchases are deferred. That behavior, once generalized, suppresses demand, incomes, and investment in a self-reinforcing downward spiral.

This is why moderate inflation is a functional requirement of modern monetary economies. Without it, consumption becomes delayable. Every household is waiting, every firm is offering discounts, and the economy is thus draining momentum from within.

China's latest CPI structure shows that prices are rising where they need to rise. Core inflation outpacing headline inflation is not a coincidence; it indicates that price signals are being restored in the very sectors that are most critical to demand normalization.

Producer prices tell a consistent story. China's producer price index (PPI) rose by 0.2 percent month on month in December, marking the third consecutive monthly increase. Year-on-year PPI remained negative, but the contraction has clearly narrowed – from declines of 3.3 percent to 3.6 percent in May through July to just 1.9 percent in December.

Anti-"involution" as prices repair: How policy has rewired competition

These outcomes did not emerge by chance.

China's prolonged low-inflation environment was closely linked to a phenomenon now widely recognized as "involutionary competition": Excessive rivalry that no longer enhances efficiency but instead erodes margins through relentless price cutting, often below cost.

The policy response began at the top. In March 2025, China's Government Work Report explicitly called for the "comprehensive rectification of involution-style competition." What followed was not immediate enforcement, but a period of institutional design – how to restore pricing order without reverting to blunt administrative control.

Concrete measures began to take shape in mid-2025, particularly from June and July onward. Their effects, by nature, were lagged behind. The price systems adjusted slowly. By late 2025, however, the data began to respond.

Multiple policy channels worked in parallel.

Government departments convened fair competition symposiums, bringing enterprises together to articulate shared constraints and negotiate common ground. Industry associations introduced coordinated self-regulatory measures under policy guidance. These mechanisms did not rely on coercion, but they altered incentives and expectations.

Legal backing strengthened the framework. In June 2025, the revised Anti-Unfair Competition Law was passed, significantly increasing penalties for below-cost sales.

Targeted sectoral rules followed in December. On December 12, the State Administration for Market Regulation released a draft compliance guideline on pricing behavior in the automotive sector. On December 9, multiple ministries jointly issued pricing conduct rules for internet platforms.

Industry-level coordination went even further. Under the China Association of Automobile Manufacturers, leading automakers committed to shortening supplier payment cycles to within 60 days, easing systemic cash-flow pressure. In the photovoltaic sector, major producers reportedly reached a consensus to restrict material supply to firms engaging in sustained below-cost pricing.

The CPI and PPI data suggest that this objective is beginning to be met.

Beyond 2025: Why this shift matters for growth, stability, and global perception

China's current development phase prioritizes high-quality growth. Structural upgrading inevitably means differentiation: Some sectors are advancing faster while others are lagging behind. But transformation cannot proceed through disorderly adjustment.

Anti-involution policy has played a stabilizing role in this transition. It does not freeze competition; it restores its economic meaning. Growth quality and growth scale are not mutually exclusive. Stability in aggregate demand is a prerequisite for structural upgrading to succeed.

The policy trajectory also extends beyond 2025. The Central Economic Work Conference in December placed renewed emphasis on "deeply rectifying involution-style competition," signaling that this agenda will remain a core pillar of macroeconomic governance in 2026.

For international observers concerned about deflationary risks stemming from weak Chinese consumption, the latest data offer empirical clarity. The feared scenario – persistent consumption downgrading and postponement – has not materialized. On the contrary, price signals are re-emerging, anchored in core inflation rather than volatile external inputs.

China is not exporting deflation.

The CPI reading in December proves that China is repairing its domestic price formation mechanism.