China’s consumer prices increased at their fastest pace in almost two years, according to data released on Wednesday. The country’s consumer price index (CPI) rose 0.7 percent year-on-year in November, exceeding the 0.2 percent increase recorded in October. This surge in inflation is largely attributed to a shift from declines to increases in food prices, with fresh vegetable prices specifically experiencing a significant surge after nine consecutive months of decline.

The Chinese economy has been battling deflationary pressure and sluggish spending for several years, partly due to a prolonged crisis in the property sector and the lingering effects of the Covid pandemic on consumer sentiment. Authorities have been working to transition the economy towards a model driven more by domestic consumption than exports and manufacturing. However, results from an expanded subsidy scheme introduced earlier this year to stimulate consumer activity have been mixed, with a short-term increase in purchases failing to halt a longstanding slump in sentiment.

The producer price index (PPI), which measures the cost of goods before they enter wholesale or distribution, fell to 2.2 percent last month, indicating weak demand and a global oversupply of manufactured goods from China. This has led to expectations that overcapacity will persist, keeping China in deflation next year and in 2027.

Despite these challenges, China’s exports have continued to boom, providing a key economic lifeline. Recent data showed that the country’s trade surplus surpassed $1 trillion for the first time, amid heightened trade tensions with the United States and other Western governments. However, imports missed forecasts, rising only 1.9 percent on-year in November, further highlighting the weakness in domestic consumption.

The rise in consumer prices and the ongoing trade dynamics are significant for China’s economic outlook. As the world’s second-largest economy, China’s performance has implications for global trade and economic stability. The country’s ability to balance its economic growth, manage inflation, and address domestic consumption challenges will be closely watched in the coming months.