China July Inflation Preview: Low Inflation Risks May Ease

TradingKey - On 9 August 2025, China's National Bureau of Statistics will release July inflation data as scheduled. The market widely expects the Consumer Price Index (CPI) for July to shift from June’s 0.1% year-on-year increase to negative growth. The Producer Price Index (PPI) is projected to record a year-on-year decline of -3.2% in July, showing an upward trend compared to June’s figure. We concur with these market expectations.

The primary factors influencing July’s inflation data stem from “anti-involution” measures. Against this backdrop, consumer goods prices are expected to maintain some support. Meanwhile, with the arrival of the summer season, the holiday economy is likely to drive a surge in tourism and travel, boosting service consumption demand. However, there are counterbalancing pressures: downward price trends in food (particularly vegetables and pork) and energy are expected to offset the upward factors, potentially leading to a 0.1% year-on-year decline in the CPI. Concurrently, as “anti-involution” policies intensify, the decline in factory-gate prices is likely to narrow. The PPI is projected to improve from June’s year-on-year drop of -3.6%, reaching -3.2% in July.

Looking ahead, we anticipate that as the effects of “anti-involution” policies deepen, the PPI will gradually show signs of recovery. During this process, the upward momentum in PPI prices is expected to progressively transmit to the CPI, helping China mitigate the risk of low inflation.

Main Body

On 9 August 2025, China's National Bureau of Statistics is scheduled to release inflation data for July. The prevailing market view suggests that the Consumer Price Index (CPI) for July will shift from a 0.1% year-on-year increase in June to negative growth. Meanwhile, the Producer Price Index (PPI) is expected to record a year-on-year decline of -3.2% in July, reflecting an improvement compared to June’s figure (Figure 1). We align with these market expectations.

Figure 1: Consensus Forecasts

Source: Refinitiv, TradingKey

The primary drivers of July’s inflation data are tied to “anti-involution” policies. Specifically, the sixth meeting of the Central Financial and Economic Affairs Commission on 1 July outlined a clear roadmap for implementing policies to address “comprehensive management of involutionary competition”. The meeting emphasised measures such as “regulating enterprises’ disorderly low-price competition following laws and regulations and promoting the orderly exit of outdated production capacity”. Following this, multiple government departments took successive actions to tackle “involution” issues in the market. At the end of July, the Political Bureau meeting further underscored the importance of “anti-involution” efforts, focusing on three key areas: “governance of disorderly corporate competition”, “capacity regulation in key industries”, and “standardisation of local government investment attraction practices”.

Under the current “anti-involution” policy framework, prices of consumer goods are expected to retain some support. Additionally, with the onset of the summer season, the holiday economy is likely to spur a peak in tourism and travel, thereby boosting service consumption demand. However, counteracting factors are also at play: due to a high base effect from the previous year, China’s vegetable price index is projected to shift from positive to negative growth. In the pork market, sustained high hog production capacity, combined with warmer weather potentially accelerating slaughter rates, is expected to maintain a pattern of “strong supply and weak demand”, leading to a decline in pork prices. Overall, downward pressure on food prices, coupled with a marginal retreat in fuel prices, is likely to offset upward factors. Consequently, we forecast a 0.1% year-on-year decline in the CPI for July (Figure 2).

Figure 2: China CPI (%, y-o-y)

Source: Refinitiv, TradingKey

Against the backdrop of intensifying “anti-involution” policies, the decline in factory-gate prices is likely to gradually narrow. According to July’s PMI sub-indices, the purchase price index and the ex-factory price index rose by 3.1 and 2.1 percentage points, respectively, compared to June. This shift suggests that the year-on-year decline in the PPI may improve from -3.6% in June to an estimated -3.2% in July (Figure 3).

Looking forward, we assess that as the effects of “anti-involution” policies continue to deepen, PPI prices will gradually show signs of recovery. This upward momentum in PPI prices is expected to progressively transmit to the CPI, helping China mitigate the risk of low inflation.

Figure 3: China PPI (%, y-o-y)

Source: Refinitiv, TradingKey