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China inflation rate: Will the country's reopening lift price levels in 2023?

By Mensholong Lepcha

Edited by Georgy Istigechev

16:29, 27 December 2022

Crowd of busy commuters with protective face mask walking through platforms at subway station during office peak hours in the city
China appears to be backing away from its zero-Covid policy. What effect will this have on the country’s economy and inflation rate? – d3sign / Getty Images

China’s latest inflation report showed that its economy was unable to sustain the recent pick-up in inflation rates following nationwide Covid-induced lockdowns in the fourth quarter of 2022.

Inflation in China slowed for the second month in a row in November 2022 as a new wave of Covid-19 infections disrupted recovery in the world’s second-largest economy. 

The Chinese authorities made several changes to its restrictive zero-Covid policy in early December 2022, which are expected to help increase consumption and demand in the near term.

The offshore yuan (USD/CNH) – the Chinese national currency traded outside of mainland China – appreciated toward 6.95 per US dollar after China announced that it will end quarantine requirements for inbound travelers starting in early January, symbolizing an end to its zero-Covid policy and igniting hopes for a faster economic recovery.

How is China's inflation rate expected to trend in 2023? Learn more here.

What is inflation and how is it measured in China?

Inflation is defined as a rise in the prices of goods and services over a period of time. The rise in prices results in a decline in purchasing power.

There are various ways to measure inflation which differ in the types of goods and services tracked. The consumer price index (CPI) is the most commonly used method of measuring inflation.

The CPI tracks the price changes across a basket of goods and services that are considered primary consumer needs. These items include food, clothing, rent, transportation, education, healthcare and more.

The CPI is also referred to as headline inflation. An inflation index that excludes volatile items such as fuel and food prices is known as core inflation index.

In China, the National Bureau of Statistics of China (NBS) publishes CPI data on a monthly basis. The data agency also publishes the producer price index (PPI) data every month.

PPI measures the rate of change over time in the selling prices received by domestic producers for their goods and services. This index measures price changes from the perspective of a self and reflects the first commercial transaction for many products and services.

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Inflation analysis: China sees weak inflation  

A study of China’s inflation rate history showed that the annual headline inflation in the nation trended close to 2% over the last decade.

Inflation rate in China rose to multi-year highs in 2019 after food prices rose following severe weather conditions and swine flu epidemic. 2019 was also a year when the tariff war between the US and China was at its peak.

Prices of goods and services fell sharply in 2020 as the Covid-19 pandemic brought the Chinese economy to a grinding halt. With cities under strict lockdowns in China, consumption of goods and services declined and so did the prices for it.

By November 2020, China reported deflation as consumer prices fell 0.5% year-on-year. It was the first deflation rate that China reported in over 11 years.

The nation struggled with low inflation in 2021 as Chinese authorities steadfastly implemented a zero-Covid policy which brought mega-cities like Shanghai under lockdown from time to time.

2022 saw global inflationary pressures seep into the Chinese economy as inflation rates began picking up. By September 2022, annual CPI inflation rose to its highest since April 2020 at 2.8%.

However, consumer prices were unable to sustain the rise as China reported record-high Covid-19 infections in the fourth quarter of 2022.

Latest news: Inflation seen picking up on reopening plan

In early December, the NBS released the CPI report for November 2022, where data showed the annual inflation rate decelerated for the second month to 1.6% from 2.1% a month ago. 

Covid-19 curbs continued to dent demand and consumption in the world’s most populous nation.  Food items like fresh vegetables and meat reported the biggest monthly fall in prices out of all items on the CPI report.


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On 22 December, Bloomberg reported that China was likely seeing 1 million new Covid infections per day in what is expected to be the “biggest outbreak the world has ever seen.”

Meanwhile, the PPI report for November 2022 showed that producers were paid lesser prices for their goods and services than a year ago. 

The PPI index – an important indicator of the profitability of Chinese manufacturers – reported deflation for the second month in November 2022 at -1.3%.

Weakness in the Chinese steel industry contributed the most to the fall in producer prices as prices for manufacturing and processing of ferrous metals fell 18.7% year-on-year in November 2022.

Chinese authorities made a raft of changes to the zero-Covid policy in December 2022 to balance pandemic control and economic growth.

According to ANZ Research, Beijing unveiled 10 new measures which marked the end of the “highly restrictive” zero-Covid approach.

Asymptomatic cases were allowed recover at home, restrictions on the purchase of flu medicines were removed and blocking of doors was prohibited under the new measures.

Raymond Yeung, chief economist for Greater China and Zhaopeng Xing, senior China strategist, of ANZ Research, wrote on 8 December:

“The developments reinforce our recent GDP forecast upgrade. High-frequency indicators suggest traffic flows have started to rebound. Domestic activities will likely improve from here on. China’s policymakers will want to boost domestic demand to counter the impact of a global slowdown.”

ANZ Research upgraded its China 2023 GDP forecast to 5.4% in November from 4.2%, citing easing Covid restrictions and a property sector bail-out.

On 27 December, China announced the reopening of its borders to the rest of the world after nearly three years of isolation.

According to Jefferies, “China re-opening” will be a key near-term theme. The investment firm named consumption stocks such as Casino operator Galaxy Entertainment (0027) and hot pot restaurant chain Haidilao International (6862) among its key equity picks for 2023.

China inflation rate forecasts for 2023 and beyond

According to ING’s China inflation forecast, annual headline inflation is expected at 2.1% for the fourth quarter of 2022.

ING’s long-term China inflation rate forecasts saw the Chinese CPI index rising by 2.5% in the second quarter of 2023 before easing to 2% in the fourth quarter of 2023.

Meanwhile, TradingEconomics China inflation predictions saw the CPI index rising by 1.7% by the end of December 2022. Expected China inflation in 2023 was 2%.

Tao Wang, Chief China Economist of UBS Investment Bank Research, said:

“An early exit from the zero-Covid policy may lead to a faster rebound in consumption, but rise in Covid infection may lead to cautious consumer behaviour and some production disruption.”

“We expect a strong rebound in consumption and services activities following the re-opening as pent-up saving is used and demand is released, and we expect CPI inflation to average not much more than 2% in 2023,” added Wang.

Finally, the Organisation for Economic Co-operation and Development (OECD) saw China’s annual inflation rate accelerating to 2.7% in the first quarter of 2023 from 2.4% in the fourth quarter of 2022.

When looking at a China inflation forecast, it’s important to remember that analysts’ forecasts can be wrong. We encourage you to always conduct your due diligence by reading the latest news, conducting technical and fundamental analyses, and studying a wide range of economic commentary. 

Remember, your decision to trade should depend on your attitude to risk, your expertise in the market, the spread of your portfolio, and how comfortable you feel about losing money. You should never trade more than you can afford to lose


What is the current inflation rate in China?

The NBS reported that the annual inflation rate decelerated for the second month in a row to 1.6% in November from 2.1% a month ago.

Has inflation been going up?

The latest consumer price index data from November 2022 showed that inflation slowed for the second month in a row to 1.6%. Inflation in China is expected to pick up in 2023 as its economy reopens after the lifting of harsh zero-Covid policies.

Why is inflation so high right now?

Inflation in multiple nations across the world – including the US – is at multi-decade highs following the start of the Russia-Ukraine war and energy supply insecurities.

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You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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