China’s Consumer Price Index (CPI) for August 2025 is expected to show ongoing deflation, predicted at -0.2% year-on-year, compared to 0% in July. Despite continuous government support and stimulus efforts, domestic demand in China remains weak. The Producer Price Index (PPI) is also likely to continue its deflationary trend. In an initiative called “Anti-involution,” policymakers are now focused on reducing intense and unproductive competition, particularly in industries like solar power, electric vehicles, and steel.

Preventing Inefficiency

This policy aims to curb inefficiency caused by excessive competition with little progress. There is still overcapacity in private-sector industries, presenting ongoing challenges. The data will be released at 0130 GMT, which is 2130 US Eastern time. We are keeping a close eye on the upcoming Chinese inflation data set to be released tomorrow, September 10th. The market expects another month of deflation, suggesting that weak domestic demand is becoming entrenched despite government efforts. This trend creates a cautious outlook for assets connected to Chinese and global growth. This situation sends clear signals to currency markets, especially for commodity-linked currencies. Historically, we’ve seen the Australian dollar weaken against the US dollar following weak Chinese industrial data, similar to trends during the slowdowns of 2023 and 2024. Therefore, taking bearish positions on the AUD/USD pair or buying put options on Australian dollar futures may provide a smart hedge against worse-than-expected data.

Market Implications

The ongoing decline in producer prices points directly to industrial overcapacity and diminishing demand for raw materials. Iron ore prices have struggled to stay above $110 per ton for most of 2025 and are especially vulnerable to further drops. We expect traders to increase short positions in commodity futures for industrial metals like copper and iron ore in the upcoming weeks. Global stocks that rely heavily on sales to China may face downward pressure. Companies in sectors such as European luxury goods, German automotive, and US technology have seen their valuations heavily influenced by Chinese consumer sentiment. For example, Apple generated nearly 20% of its revenue from Greater China in 2024. Any confirmation of continued consumer weakness justifies buying protective puts on these specific stocks. The broader trend suggests a potential increase in market volatility, especially if the data disappoints. The “Anti-involution” policy is a long-term goal, but right now, the price wars it aims to stop are contributing to this deflationary pressure. Traders might prepare for more market turbulence by purchasing options on ETFs that track the Hang Seng Index or other China-focused funds. Create your live VT Markets account and start trading now.

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