Under the constraints of demand, since 2024, the overall trend of inflation has been relatively weak, with the Producer Price Index (PPI) year-on-year still not turning positive, while the Consumer Price Index (CPI) year-on-year fluctuates at a low level. Looking ahead to 2025, the momentum for industrial product price increases may still be limited under the global economic downturn, and the PPI is expected to rise moderately, but it is unlikely to turn positive within the year. Regarding CPI, pig prices may reach a peak at the beginning of 2025, and due to the base effect, the year-on-year readings are expected to fluctuate widely, with the central tendency slightly rising. Overall, it is anticipated that the inflation trend in 2025 will not be sufficient to reverse the loose monetary stance for most of the year, but attention should be paid to the rapid rise in CPI year-on-year readings due to the base effect during certain periods, which could disrupt the bond market.

▍Review of 2024 Inflation Trend: Weak Demand, Low Inflation.

Looking back at the inflation trend since 2024, the PPI year-on-year readings have fluctuated below 0, with the main trend being downward on a month-to-month basis. This year, the supply side has shown stronger repair elasticity than the demand side, real estate continues to bottom out, and the growth rate of infrastructure investment has slowed down, leading to a lack of momentum in the price increases of major industrial products. The CPI year-on-year readings have fluctuated and risen, remaining below 1%, with the month-to-month trend being quite divergent. Among them, pig prices entered a new round of price increases in the second half of the year, and since the second half of the year, the momentum for non-food items to increase prices on a month-to-month basis has been generally lower than the same period last year, and the rise in prices is still constrained by the weak repair of demand.

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▍2025 Inflation Trend Forecast: PPI Year-on-Year Stabilizes and Rises in the First Half of the Year, CPI Year-on-Year Fluctuates Widely.

Referring to the trends of two leading indicators, M1 year-on-year growth rate and real estate sales year-on-year growth rate, it is expected that under the environment of constrained investment demand, the PPI year-on-year may mainly fluctuate at a low level in the first half of 2025. The year-on-year trend of non-food CPI is basically synchronized with the PPI year-on-year trend or slightly lags behind, and it is expected that there will not be a significant upward momentum in the first half of the year; the food item year-on-year may show significant fluctuations due to the base effect of pig prices in that year, and the overall CPI year-on-year may show a pattern of being high in the front and low in the back.

▍PPI: Under the global economic downturn cycle, the momentum for price increases may still be limited, and it may be difficult to turn positive within the year.

On the supply side, OPEC+'s plan to increase production at the beginning of the year has been implemented, and there is uncertainty about Iran's supply. In the long-term demand environment lacking support, oil prices may fluctuate widely and the central tendency may move downward; the trend of black series prices in 2025 may be more affected by the growth rate of infrastructure investment and the pace of fiscal policy, the central tendency may be similar to this year, and the trend may first rise and then fall; in terms of non-ferrous metals, high inventory restricts short-term price momentum, but in the environment where the prosperity of the manufacturing industry is recovering, long-term prices may have support. It is expected that the PPI year-on-year in 2025 may stabilize in the first half of the year, accelerate in the second half of the year, but it is difficult to turn positive.

▍CPI: The pig cycle may reach a peak and decline, and the year-on-year readings may fluctuate due to the base effect, with a slight rise in the central tendency.

Referring to leading indicators such as the inventory of breeding sows, pig inventory, and pig outflow, the price of pork in 2025 may show a slight rise at the beginning of the year, and then steadily decline, while it is assumed that the prices of fruits and vegetables will continue to follow seasonal trends. In terms of non-food items, the month-to-month trend may continue to follow seasonal characteristics, and in the environment where consumer promotion tools are gradually exerting force, the momentum for price increases during holiday periods may be higher. In summary, the CPI year-on-year in 2025 may show a trend of fluctuating and rising.

▍The moderate rise in inflation may not be sufficient to reverse the loose monetary stance for most of the year, but attention should be paid to the impact of the base effect during certain periods.It is anticipated that in 2025, the Producer Price Index (PPI) will experience a moderate year-on-year recovery, but it is unlikely to turn positive. The Consumer Price Index (CPI) is expected to fluctuate widely, with a slightly higher central tendency, yet mostly remaining within the 1% range. For the bond market, inflationary pressures are still relatively light and may not be sufficient to disrupt the central bank's accommodative monetary policy stance. However, it is noteworthy that due to the low base effect in certain months of that year, the CPI year-on-year readings may show a rapid increase, which could potentially cause some disturbance to the bond market. Nevertheless, the overall inflation risk is likely to remain controllable.