China: Inflation slows in July from the prior month
Latest reading: Consumer prices were up 0.5% in annual terms in July, following a 1.0% increase in the previous month and well below market expectations.
The reading marked its weakest level since January, reflecting sustained declines in food prices alongside a further moderation in non-food inflation. Food prices contracted for a fourth consecutive month, falling 1.5% after a 1.6% drop in June, as ample supply continued to push pork prices lower. At the same time, inflation in non-food categories eased noticeably, with prices increasing by 0.9%, down from 1.5% previously, a sign of downbeat domestic demand and vast manufacturing capacity.
Finally, consumer prices were down 0.10% in July on a month-on-month basis, following a 0.30% decline in the previous month.
Panelist insight: On the reading and the implications for monetary policy, Nomura analysts said:
“Despite the global oil price shock and the global AI boom, China’s underlying inflation remains stubbornly subdued, owing to persistent downward pressures from the property bust. Following the sharp growth slowdown in Q2, the mid-year July Politburo meeting signaled that Beijing is likely to step up pro-growth policy measures in H2. Despite the relatively large inflation miss in July, we still believe PBoC is unlikely to deliver a policy rate cut this year, as other major central banks are under pressure to hike rates. An RRR cut is an option for the PBoC to accommodate a potential pickup in government bond issuance later this year, though it is still not our base case, and we would expect almost no impact on interest rates and credit demand from such a cut.”