China's July inflation eases below forecasts as Iran war oil shock starts to fade

Inflation data misses forecasts

China's National Bureau of Statistics reported on Sunday that the producer price index climbed 3.5% year-on-year in July, down from 4.1% in June and below the 3.8% increase forecast in a Reuters poll. The consumer price index rose 0.5% year-on-year, its slowest pace since January, compared with 1% growth in June and an expected 0.8% rise. On a monthly basis, CPI fell 0.1%, against forecasts for a 0.2% gain and following a 0.3% dip in June. The moderation in producer price growth was the first since the outbreak of war in Iran in late February, which had jolted the index back into positive territory after years of deflation.

June CPI (YoY)1%

July CPI (YoY)0.5%

June PPI (YoY)4.1%

July PPI (YoY)3.5%

June CPI (YoY)

1 %

July CPI (YoY)

0.5 %

June PPI (YoY)

4.1 %

July PPI (YoY)

3.5 %

Data from the article text

Oil retreat drives the slowdown

The National Bureau of Statistics pointed to slowing year-on-year increases in gasoline prices as a major factor in the weaker CPI rate. Gasoline prices rose 1% year-on-year but fell 11% month-on-month. The closure of the Strait of Hormuz following US and Israeli attacks on Iran had prompted surging oil prices, which have since retreated from earlier highs. Brent crude, the international oil benchmark, was trading at $83.55 a barrel on Friday, compared with more than $110 in April. The bureau cited price increases in oil and gas extraction, fuel processing and chemical raw materials as contributors to the PPI reading.

Domestic demand remains tepid

The latest data follows figures highlighting concerns over economic momentum. The official manufacturing purchasing managers' index fell in July for the first time in five months, and a separate PMI gauge covering services and construction hit its lowest level since 2022. Retail sales, covering goods and catering, declined in May for the first time since 2022 and added just 1% in June. Fixed-asset investment is down 5.7% year-on-year in the first half. Official GDP growth in the second quarter was 4.3%, below an official annual target described as the lowest in decades. At a July meeting of the Politburo, a top decision-making body of the Communist Party, leaders pledged to accelerate fiscal spending but stopped short of unveiling any major stimulus.

Exports cushion the economy

Against pressure at home, China's exports have grown sharply this year and added nearly 24% year-on-year in July. China's trade surplus in goods is now above the same period in 2025, when it ultimately reached a record high of $1.2tn, according to figures released on Friday. The export surge contrasts with the weak domestic demand signals embedded in the inflation and PMI data, leaving the economy reliant on external demand as policymakers weigh further fiscal action.