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China's consumer inflation accelerated to its fastest pace in nearly three years in December, official data showed on Friday, signaling a stabilizing economy as recent stimulus measures continued to bolster domestic demand.

Going forward, analysts said consumer inflation is expected to remain mild through 2026, leaving ample room for policymakers to step up macroeconomic adjustment to counter mounting uncertainties. Policy options include targeted measures to boost domestic demand and support innovation, as well as further cuts to the reserve requirement ratio and interest rates.

The country's consumer price index, the main gauge of inflation, rose by 0.8 percent year-on-year in December, following a 0.7 percent rise in November, marking the highest level since February 2023, the National Bureau of Statistics said on Friday.

"China's latest consumer inflation data points to a continued strengthening in domestic demand, mainly driven by the impact of consumption-boosting policies and the release of demand ahead of the New Year holiday," said Tang Guang hua, an analyst at Shen yin & Wan guo Futures Co. "Meanwhile, the core CPI remained above 1 percent for four consecutive months in December, highlighting a steady improvement in consumption fundamentals."

The improving inflation data has reflected the growing momentum of the Chinese economy, with the World Bank, the International Monetary Fund and the Asian Development Bank having raised their growth forecasts for China's economy.

The IMF forecasts a 5 percent GDP expansion in 2025 and 4.5 percent for 2026, while Goldman Sachs said this week that it expects China's GDP to grow 4.8 percent in real terms in 2026, supported by a policy-backed investment rebound, the potential of service consumption, resilient export growth and a milder drag of the property sector.

With economic momentum showing signs of improving, Chinese stocks moved higher on Friday, with the Shanghai Composite Index posting a solid gain of 0.92 percent to close at 4,120.43 points, topping the psychologically important 4,100 points to reach a decade high. Since the beginning of the year, the index has risen by 3.82 percent, indicating a continuous improvement in investor confidence.

NBS data showed the core CPI, which excludes volatile food and energy prices and is deemed a better gauge of supply-demand conditions, rose 1.2 percent year-on-year in December, unchanged from November.