In July, China’s consumer prices stayed the same as last year, thanks to government efforts to reduce competition. This helped ease some deflationary pressures. However, analysts warn that getting past deflation may take time and could need stronger stimulus actions. The Consumer Price Index (CPI) for July showed no change compared to the previous year, avoiding the expected small drop. This is the second month in a row without negative readings, while expectations had been for a slight decline of -0.1% after a previous +0.1%.

China’s Economic Indicators

On a month-to-month basis, the CPI increased by 0.4%, which was higher than the expected 0.3%. This also reversed the previous month’s decline of -0.1%. Meanwhile, the Producer Price Index (PPI) fell by 3.6% year-on-year in July, marking 34 months of decreasing factory prices. To address price wars affecting company profits and wages, authorities have put measures in place, but analysts highlight ongoing problems. People are less optimistic about future prices, and the GDP deflator has dropped for nine straight quarters, the longest such decline in decades. The latest inflation figures from China show ongoing economic weakness, despite consumer prices not falling. The 34 consecutive months of declining producer prices indicate a significant lack of demand from factories, suggesting any recovery will be slow and challenging.

Investment Implications

This situation looks negative for Chinese stocks, as companies are still facing strong profit pressures. Traders may want to buy put options on indices like the FTSE China A50 or the Hang Seng Index to protect against or benefit from a possible downturn. The ongoing price wars, which the government is trying to control, will keep impacting corporate profits. The extended deflation in factory prices signals weak demand for industrial goods. We’ve already seen key commodity prices, like iron ore, fall below $100 per tonne this year, reflecting a poor appetite in the industrial sector. Shorting commodity futures linked to industrial metals or buying puts on related ETFs could be wise strategies. This economic strain makes it more likely for Beijing to ease monetary policy, which would weaken the yuan. The offshore yuan has already tested the 7.40 level against the dollar multiple times in 2025, indicating market expectations for economic stimulus. We believe that shorting the yuan against the US dollar remains a strong strategy in the coming weeks. It’s essential to understand that these numbers are part of a larger picture of economic difficulty. The ongoing issues in the property sector, which began with major defaults in 2021 and 2022, continue to shake confidence. Additionally, the overall GDP deflator has been falling for nine quarters, marking the longest decline in decades. Create your live VT Markets account and start trading now.

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