China’s inflation flickers, but IMF wants proof it will last

Krishna Srinivasan[FLICKR/IMF]

China is showing early signs of inflation returning, but the recovery remains tentative and uneven, according to the International Monetary Fund, with officials cautioning that stronger, sustained price gains are still needed to reverse entrenched deflationary pressures, Bloomberg reports.

Speaking yesterday to Bloomberg Television, IMF Asia-Pacific director Krishna Srinivasan said recent data points to some upward movement in prices, largely driven by higher energy costs linked to the Iran war, Bloomberg notes. However, he stressed that these gains remain fragile.

Srinivasan said he would need to see inflation strengthen on a “more durable basis” before concluding that China has decisively entered a reflation phase.

According to Bloomberg, China is poised to end a record stretch of economy-wide deflation as producer prices recover after more than three years of decline. The broader question, Bloomberg adds, is whether this improvement will translate into stronger corporate earnings and wage growth – key ingredients for a sustained economic rebound.

Yet structural imbalances persist. The IMF has repeatedly urged Beijing to shift toward consumption-led growth, but Bloomberg reports the opposite trend this year: exports have surged while retail sales have weakened. This imbalance is leaving many downstream industries unable to pass rising input costs on to consumers, keeping overall inflation subdued, Bloomberg notes.

Economists surveyed by Bloomberg expect consumer prices to remain muted, with a median forecast of just 1% growth in 2026. Food prices are a major drag, Bloomberg adds, as a prolonged oversupply of pork – a staple in China – continues to depress prices after two years of decline in pig markets.

For the IMF, the path forward is clear. Bloomberg reports Srinivasan urging Chinese authorities to boost domestic demand and take stronger action to stabilize the property sector, which remains central to restoring confidence and supporting a durable recovery.

China’s growth has held up so far, supported in part by booming global demand for artificial intelligence and high-tech exports, Bloomberg says. That export strength is helping offset the economic strain from rising energy costs tied to geopolitical tensions.

Bloomberg reports the IMF expects regional growth to slow by one to two percentage points by 2027, while inflation could rise by up to four points, reflecting prolonged disruption in energy markets. Srinivasan told Bloomberg that the combination of high energy prices, tighter financial conditions and potential shifts in the AI-driven tech cycle remains a key concern for policymakers. PC