China’s Consumer Price Index (CPI) rose by 0.2% in October compared to last year, bouncing back from a 0.3% drop in September, as reported by the National Bureau of Statistics of China. The market expected no change. Month-over-month, the CPI also increased by 0.2% in October, beating September’s increase of 0.1%. The Producer Price Index (PPI) in China fell by 2.1% year-on-year in October, showing improvement from a 2.3% decrease in September. This was slightly better than the anticipated -2.2%. Meanwhile, the AUD/USD currency pair dropped by 0.03% to 0.6496.

Understanding Inflation Measures

Inflation indicates how much prices rise for a set basket of goods and services, assessed both monthly and yearly. Core CPI excludes fluctuating items like food and fuel and is closely watched by economists and central banks aiming for around 2% inflation. When inflation is high, a country’s currency usually strengthens because central banks raise interest rates to control it, attracting foreign investment. Conversely, low inflation can weaken a currency. Gold, often seen as a safe investment, loses its appeal during high inflation because of the opportunity costs associated with rising interest rates. However, lower inflation can boost gold prices, making it more attractive. China’s latest inflation figures suggest that its deflationary pressures may be easing. The rise in consumer prices after a drop in September points to stabilizing domestic demand in China. This development makes it less likely for the People’s Bank of China to implement aggressive stimulus measures. We have been monitoring this closely, especially after the deflationary concerns in 2024 that affected global growth sentiment. Though small, this data could indicate a shift away from that negative trend.

Impact on Global Commodities and Currencies

As a major consumer of commodities, China’s situation is a positive sign for industrial metals and energy. Recent data shows that China’s iron ore imports in October 2025 increased by 3.1% from the previous month, indicating renewed industrial activity. We should prepare for further strength in assets linked to global growth. For currency traders, this is good news for the Australian dollar. Although the AUD/USD is currently around 0.6496, it is closely tied to China’s economic health. Buying call options on the AUD may offer a way to gain upside potential with manageable risk. We can also consider options on commodity-focused ETFs, such as those tracking copper or broad industrial metals. The slight easing of producer price deflation, now at -2.1% from -2.3%, hints at improved factory prices, which could boost commodity prices. Thus, buying out-of-the-money calls could be a good risk-reward choice. However, we must remain cautious. This data only represents one month, and producer prices are still declining year-over-year. A careful approach, like using bull call spreads instead of buying calls outright, can help limit risk if this proves to be a false signal. This strategy allows for profit from a modest price increase while capping potential losses. Currently, the very low but not negative inflation may also support gold prices. Since interest rates are unlikely to rise sharply in response to such weak inflation, the cost of holding non-yielding gold remains low. This can act as a hedge if the expected bullish sentiment doesn’t materialize. Create your live VT Markets account and start trading now.

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