China’s Consumer Price Index (CPI) rose to 0.2% year-on-year in October, recovering from -0.3% in September. The core CPI, which excludes food and energy prices, also increased to 1.2% year-on-year, marking its highest point in 20 months, compared to 1.0% in September.

Economic Trends

Services inflation went up to 0.8% year-on-year. At the same time, consumer goods experienced less price deflation, narrowing to -0.2% year-on-year from -0.8% in September. Month-over-month increases were 0.2%, a rise from September’s 0.1%. Services rebounded by 0.2%, and food prices increased by 0.3% from September. The deflation in food prices decreased to -2.9% year-on-year, improving from -4.4% in September. Even though most key food items continued to drop in price, the decline slowed for products like pork, eggs, fresh vegetables, and fruits. Prices for aquatic products rose by 2.0% year-on-year. China’s Producer Price Index (PPI) also showed reduced deflation for the third month, down to -2.1% year-on-year in October from -2.3% in September. This decline continues a 37-month pattern of year-on-year contraction. As of today, November 10, 2025, the new inflation data from China reveals a key change. The headline CPI is now positive at 0.2% year-on-year, exceeding expectations and ending a two-month period of deflation. This suggests that the market’s worries about a deflationary spiral throughout 2025 may be easing.

Market Implications

The rise in core inflation to 1.2% is significant. It shows that domestic demand, especially in the services sector, is strengthening, influenced by recent holiday spending. This indicates some stability in the Chinese consumer market, which has been anticipated. For derivative traders, the reduced PPI deflation to -2.1% is a bullish sign for industrial commodities. Historically, when China’s factory-gate prices stabilize, there is often a rise in demand for materials like copper and iron ore. With copper inventories on the Shanghai Futures Exchange at a seven-month low, we could see prices increase, making long positions in commodity futures or calls on related ETFs attractive. This data should support Chinese equities, which have struggled this year. We might consider selling out-of-the-money puts on indices like the Hang Seng China Enterprises Index (HSCEI) or the CSI 300 to collect premiums, believing that the worst economic news is behind us. The threat of a severe downturn due to deflation seems to be decreasing for now. We need to stay cautious, as the property sector remains a concern. New home sales in October dropped 12% year-on-year, according to the National Bureau of Statistics. While this is better than the over 20% declines earlier in 2025, it still indicates a lack of recovery. This may limit any significant rallies in the short term. The improving economic outlook should support the yuan (CNH) and currencies linked to commodities. The Australian dollar, often seen as an indicator of Chinese economic health, has risen over 2% against the US dollar since early November. This trend could continue, making long AUD/USD positions appealing to reflect a positive outlook on China’s economy. Lastly, since the risk of deflation appears to be less of a concern, we might see implied volatility in Chinese equity options decrease in the coming weeks. Traders prepared for this could capitalize on strategies that benefit from falling volatility. The VIX-equivalent for the Hang Seng Index, the VHSI, has already decreased from its October high of over 30 to around 24. Create your live VT Markets account and start trading now.

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